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For many of us, a car is the second-biggest purchase we’ll make, next to a home. The average price a buyer paid for a new car in March 2026 was $49,275, according to Kelley Blue Book. But sticker price isn’t the only thing to consider when budgeting for new wheels. There’s also insurance, maintenance, gas, and depreciation.

Depreciation may not be front of mind for many car buyers. But in fact, it’s a major factor in determining how to finance a new car. We’ll explain why, review different loan options, and recommend steps you can take to help you get a great deal.

How to Assess the Value of a Car

You may already know what you want in a new car: the gas mileage, capacity, features. Just as important, you know what you can afford. Or do you? Before heading to a dealership, you’ll want to extensively research the cars you’re interested in.

Once you have an idea of the makes and models you want to test drive, there are a number of services that can offer a baseline estimate for the car’s worth. Edmunds offers a True Market Value (TMV®) guide, and Kelley Blue Book provides suggested price ranges based on things such as year, model, condition, and mileage (particularly useful for used cars). The National Automobile Dealers Association (now part of J.D. Power Valuation Services) focuses on wholesale, trade-in, and retail market data derived from actual dealership transactions rather than solely relying on the dealers’ sticker prices, and Consumer Reports provides detailed reviews and reports about specific cars.

None of these resources will necessarily tell you the exact price you’ll get, but they can give you some context. It may be helpful to look at listed prices for similar cars in your area. You can even call around for price quotes from dealerships and private sellers so that you’re better equipped by the time you walk onto the car lot.

Got a car to trade in? Here’s how to find out how much your car is worth.

How the Value of Your Car Changes Over Time

A car’s value changes almost from the moment you purchase it: This is called depreciation. The first year is generally the biggest hit, with cars losing around 20% or more of their original value. The loss goes on from there. New cars often lose up to 60% of their purchase price over the first five years of ownership.

Some models depreciate more than others. For instance, cars typically depreciate faster than trucks, and midsize cars tend to hold their value better than smaller, subcompact cars. It’s smart to research the projected depreciation on the makes and models you’re interested in. Lower depreciation could become a deciding factor when all else is equal.

Recommended: How Much Should I Spend on a Car?

Car Financing Options

One of the biggest car-related costs is the loan itself. Car loans can come from a traditional bank, an online lender, or through a dealership. Here are a few car financing options:

Car Loan

Car loans can be offered directly from a bank, credit union, or online lender or arranged through the car dealer. The average loan rate for a new car for borrowers with good credit is around 6.27% (Q4 2025). If you have excellent credit, you may qualify for a lower rate, whereas if you have fair or bad credit, you may pay more. Learn how to check out your credit score for free.

Car loans are “secured” by the car, which means that the car is used as collateral on the loan. Until it’s paid off in full, you don’t own the car outright. So if you default, the lender can seize the car. The qualification process for a car loan can be more difficult than getting an unsecured personal loan since banks must verify the collateral (think more paperwork).

Dealer-Arranged Financing

When getting a loan through the dealership, the dealer typically collects your information and offers financing via a finance company owned by the car manufacturer, the dealership, or a third party. Car dealerships are good at helping customers get a car loan quickly, sometimes even without great credit. You may be able to sign a loan and drive off in your new car the same day.

Auto Loan from a Private Lender

Banks, on the other hand, may offer more competitive interest rates or more favorable terms when applying with them directly. However, the application process can be more involved and take longer. Usually, borrowers getting financing from a bank or credit union will get preapproved for a car loan prior to heading to the dealer.

Personal Loan

Another option is to skip car loans entirely and take out an unsecured personal loan. Common uses for personal loans include home repairs, debt consolidation, and other large purchases. On the flip side, a car loan can only be used to pay for a car.

Usually, buying a car with a personal loan is not the best course of action. But there are rare circumstances where it may make sense, such as if you plan on restoring an old car as a passion project. Cars in need of repair can be difficult to finance with a traditional auto loan.

For most car buyers, however, interest rates on any type of personal loan are typically higher than on car loans. Another thing to consider is the repayment period. In general, car loans extend over six years, whereas a personal loan is typically repaid in two to five years.

Getting your personal loan approved can take time, but prequalification is available. Many people get prequalified before going into the dealership so that they have an idea of how much buying power they have.

Strategies for Getting a Car Loan

As you look for a car loan that meets your needs, here are some strategies that can help.

Do Some Research

Before heading to the dealer, shop around for loans to see the interest rates and terms you may qualify for. Lenders review factors such as a borrower’s credit score and financial history to inform their borrowing decisions. So part of your research will go into understanding your credit.

Recommended: What Credit Score Do You Need to Buy a Car?

Prepare a Down Payment

A larger down payment can save you money on your loan. Down payments reduce the amount you have to borrow, which reduces what you spend on interest over time. Trading in a vehicle of substantial value accomplishes the same thing while reducing the down payment you need to put up.

A higher down payment is helpful for another reason: It can help you avoid a situation down the road where, due to depreciation, the balance of your loan is greater than the value of your car. This is variously called negative equity, being underwater, or an upside-down loan. To avoid this situation, run the numbers to make sure your down payment (or trade-in) is high enough to offset the expected depreciation on your vehicle.

That said, negative equity isn’t usually a bad thing. It only becomes a problem if your car is stolen or totaled and the payout from your insurance company isn’t enough to pay off your loan balance. (Gap insurance is designed to cover your remaining debt.) Some drivers are comfortable with being upside-down for a short period, while others prefer not to take a chance.

Consider Getting Prequalified for a Loan

Getting prequalified for a car loan helps the borrower understand what kind of car payment they can afford. Prequalification can also be used as a tool in negotiations with the dealer. In some cases, the dealer may be willing to offer a more competitive financing option.

Just keep in mind that prequalification isn’t a done deal: The loan offer is still subject to change.

The Takeaway

For many people, buying a car outright with cash isn’t an option. With an auto loan, the car acts as collateral to secure the loan. A higher down payment can save you money on interest over the life of the loan. It can also help you avoid “negative equity” down the road, where the value of the car is less than the balance of your loan. However, this is only a problem if your car is stolen or totaled and your insurance company’s payout doesn’t cover your loan obligation.

In some circumstances, it’s possible to use an unsecured personal loan to purchase a car, such as when you’re looking for a vintage car to fix up as a passion project.

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

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

Why is depreciation important when buying a car?

Depreciation significantly affects the total cost of ownership, with many cars losing up to 60% of their value within five years. This loss in value can impact your financing strategy, especially if you risk owing more on the loan than the car is worth.

What are the main financing options for buying a car?

Car buyers can choose between loans from banks or credit unions, dealer-arranged financing, or private lenders, each offering different rates and terms. While personal loans are an option, they typically come with higher interest rates and shorter repayment periods than auto loans.

How can I improve my chances of getting a good car loan?

Researching loan options, checking your credit, and getting prequalified can help you understand your budget and strengthen your negotiating position. Making a larger down payment can also lower your loan amount and reduce the risk of negative equity.

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

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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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This content may include information about products, features, and/or services that SoFi does not provide and is intended to be educational in nature.

For many Americans, going to college means taking on student debt. Roughly four in 10 people who pursue education after high school say they borrowed money to help pay for school, according to data from the Federal Reserve. While student loans can expand access to higher education, they can also create long-term financial pressure, delaying milestones like buying a home, building savings, or investing for retirement.

To understand the economic and social impact of student debt, it’s important to look at the numbers. Below, we take a deep dive into who is borrowing, how much they owe, and how debt levels vary across different groups.

How Many Americans Have Student Loans?

As of the first quarter of 2026, approximately 43 million Americans — roughly one in six adults — hold federal student loan debt. Together, they owe about $1.7 trillion in federal student loans, according to the Education Department’s Federal Student Aid office. Millions of additional borrowers carry private student loan debt.

Federal vs Private Student Loan Debt

Federal student loans account for approximately 92% of all student debt in the U.S. The rest (7.6%) comes from private student loans issued by banks, credit unions, and online lenders. Total outstanding private student loan debt currently stands at around $181 billion, according to the Consumer Financial Protection Bureau.

Federal loans are generally available regardless of credit history and offer fixed interest rates, income-driven repayment, deferment options, and potential loan forgiveness programs. Private student loans, on the other hand, typically require a credit check (and often a cosigner) and may carry variable rates. However, private loans often allow students to borrow up to the full cost of attendance, which can exceed federal borrowing limits.

New federal borrowing restrictions taking effect in 2026 — including the elimination of the Grad PLUS program — may increase reliance on private student loans, particularly among graduate and professional students.

Who Is the Typical Student Loan Borrower?

Student loan borrowers span every age group and demographic, though borrowing patterns vary significantly by age, gender, race, income, and education level.

Student Loan Debt by Age

Adults under age 30 make up the largest share of federal student loan borrowers, representing nearly 34% of all borrowers, according to the Education Data Initiative. However, borrowers between ages 30 and 59 tend to carry the highest debt balances after college, likely because of graduate school debt and years of accumulated interest.

Age Group	Percentage of Federal Borrowers	Average Remaining Debt
Under 30	33.7%	$23,795
30-39	28.1%	$42,014
40-49	17.9%	$44,797
50-59	12.1%	$45,126
60+	8.3%	$37,360

Source: Education Data Initiative

Student Loan Debt by Gender and Race

Research consistently shows that women and people of color are more likely to rely on student loans and often carry higher balances than their peers.

Average Student Loan Debt for Men and Women

Among bachelor’s degree holders:

•   49.3% of female students take out federal student loans, compared to 41.9% of male students.

•   On average, women borrow 3.63% more.

Among associate degree holders:

•   Female students are 16% more likely to borrow federal student loans than male students.

•   Women at this level also borrow approximately 14% more on average.

Average Student Loan Debt by Race

Borrowing disparities are also significant across racial and ethnic groups:

•   Among all bachelor’s degree holders, Black students are more likely to borrow federal student loans, with 82.9% taking on debt.

•   Four years after graduation, Black borrowers owe $25,000 more than white borrowers with bachelor’s degrees.

•   Nearly 48% of Black student borrowers owe more than their original loan balance four years after graduation, compared to 17% of white borrowers.

•   About 59% of Asian graduates leave college with educational debt.

•   Approximately 67% of Hispanic and Latino graduates borrow for college.

Student Loan Borrowers by Debt Size

More than half of federal student loan borrowers (52.1%) owe $20,000 or less. At the other end of the spectrum, a relatively small percentage of borrowers carry extremely high balances, often due to graduate or professional school borrowing.

Amount Owed	Percentage of Borrowers
Under $5K	15.9%
$5K-$10K	16.11%
$10K-$20K	20.1%
$20K-$40K	21.4%
$40K-$100K	18%
$100K-$200K	5.74%
$200K+	2.65%

Source: Education Data Initiative

How Many People Have Student Loans by Demographic?

Middle-income students are most likely to borrow for college, representing approximately 50.8% of all student loan borrowers, according to the Education Data Initiative.

Living arrangements and marital status also influence borrowing patterns:

•   57.4% of students living on campus take out federal student loans.

•   31.1% of students living with their parents use federal loans.

•   41.7% of married undergraduate students rely on federal student loans.

Recommended: Average Student Loan Debt by State

What Percentage of College Students Take Out Student Loans?

Overall, around 40% of all students borrow money to pay for college. However, borrowing rates vary significantly depending on the type of degree pursued.

According to Federal Reserve data:

•   48% of adults with a bachelor’s degree report taking out student loans.

•   54% of adults with graduate degrees used student loans to finance their education.

•   28% of people who attended college but did not complete a degree say they borrowed student loans.

Graduate and professional students tend to borrow the most because advanced degree programs are often more expensive and federal borrowing limits for undergraduate students are lower.

Recommended: Average Student Loan Debt by Career

What Is the Total Student Loan Debt in the U.S.

Americans collectively owe approximately $1.85 trillion in student debt, including federal and private loans. The vast majority of this balance — roughly $1.7 trillion — is held in federal loans, while private loans account for around $181 billion. Of that private debt, about $30 billion consists of refinanced loans.

How Student Loan Debt Has Changed Over Time

Student loan debt in the U.S. has grown dramatically over the past two decades. In 2006, total outstanding student debt stood at roughly $520 billion. By 2026, that figure had climbed to approximately $1.85 trillion. This means student loan debt has increased by around 256% over the past 20 years.

Several factors have contributed to this sharp rise, including:

•   Rising college tuition and fees

•   Increased college enrollment

•   Higher average borrowing amounts

•   Slower repayment timelines

•   Growing graduate and professional school debt

The Takeaway

Student loans play a major role in how Americans pay for higher education. While borrowing can create financial challenges after graduation, student loans also help millions of students access college and career opportunities that might otherwise be out of reach.

As tuition costs continue to rise, many students and families rely on a combination of savings, scholarships, grants, work-study programs, and federal and private student loans to finance their education. Understanding how student borrowing works — including how much students typically borrow and which groups are most affected – can help borrowers come up with a smart financial plan.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Who holds the majority of student debt?

Adults under age 30 make up the largest share of federal student loan borrowers. However, those aged 30 to 59 carry the highest average debt balances, with the 50–59 age group owing an average of $45,126. In addition, women and people of color often hold higher balances than their peers; for instance, Black borrowers owe $25,000 more than white borrowers four years after graduation.

What is the average student debt in the U.S.?

The average student loan balance in the U.S. is approximately $39,535. Debt levels vary significantly by age: Borrowers in the 50 to 59 age group carry the highest average balance at $45,126, while those under 30 average $23,795.

What is the total amount of student debt owed by Americans?

Americans collectively owe approximately $1.85 trillion in student debt. This figure includes about $1.7 trillion in federal student loans and around $181 billion in private student loans.

How do you get rid of student loan debt?

Student loan debt is typically repaid through monthly payments over a set repayment term. Borrowers may reduce or eliminate debt faster by making extra payments or refinancing to a lower interest rate and shorter term. Some federal loans may qualify for forgiveness programs, such as Public Service Loan Forgiveness or teacher loan forgiveness. Federal student loans may also be discharged due to disability or school closure.

What happens to student loan debt when you die?

When a borrower dies, federal student loan debt is typically discharged and does not need to be repaid. For private student loans, policies vary by lender; some may discharge the debt, while others may require repayment from the borrower’s estate or a cosigner if one exists.

How does student loan debt affect the economy?

Student loan debt can affect the economy by reducing borrowers’ ability to spend, save, and invest. Many borrowers delay buying homes, starting businesses, and saving for retirement because of monthly loan payments. At the same time, student loans help more people access higher education, which can increase earning potential and contribute to long-term economic growth. Economists often view student debt as both a financial burden for some households and an investment in future workforce development.

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Photo credit: iStock/Prostock-Studio

SoFi Private Student Loans
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., Puerto Rico, U.S. Virgin Islands, or American Samoa, 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 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

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

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When you apply for a mortgage, lenders typically require proof of income via pay stubs, W-2s, and tax returns. But with a bank statement mortgage, borrowers can use their bank statements instead of tax documents to verify income.

For self-employed workers, who currently number more than 9 million, and sole proprietors (another nearly 30 million), using bank statements can demonstrate real income instead of the lower figure that might be reported on a tax return after deductions.

Read on to learn how you can leverage your bank statements to qualify for a mortgage.

What Is a Bank Statement Mortgage?

A homebuyer who is self-employed — whether they’re a sole proprietor, independent contractor, a member of a business partnership, freelancer, or gig worker — or anyone else may qualify for a bank statement mortgage loan, also known as a self-employed mortgage, by submitting personal or business bank statements.

A bank statement lists all transactions made in an account during a set period of time, usually a month. The sum of the transactions, including deposits, charges, and withdrawals, is used to calculate the beginning and ending balances for that period. In place of tax returns, this account information is used to verify you have enough income and cash flow to cover a down payment and monthly loan payments.

Lenders offering bank statement mortgages may ask for 12-24 months of statements to determine the borrower’s net income (how much they earned after taxes and business write-offs). Typically, the bank statements cover the time period immediately preceding the loan application.

How Does a Bank Statement Mortgage Work?

So, what is a bank statement mortgage in practice? As with any mortgage, lenders can consider your credit score, work history, and proof of liquid assets as part of the loan application. But a bank statement mortgage differs in at least one way.

Whether you deposit income from your business directly into a personal bank account or into a separate business account affects how your income is calculated.

Lenders may apply an expense ratio to business bank statements with the understanding that part of the deposits go toward business expenses. This means that only a percentage — usually 50%-85% — of qualifying deposits is used to calculate income. (However, it’s possible to obtain a lower expense factor with a statement from a certified public accountant or tax preparer.)

If you deposit income to your personal account from your business account, 100% of deposits can count toward calculating the bank statement mortgage you can afford. Without a separate business account, though, deposits to a personal account also receive an expense ratio.

Note that lenders can also factor in your ownership percentage in a business when calculating gross monthly income from business bank statements.

Here’s an example of how these two scenarios would work for the same self-employed person applying for a 12-month bank statement mortgage:

Business bank statement: ($84,000 in deposits / 12 months) x 50% expense ratio = $3,500 gross monthly income

Personal bank statement: $84,000 in deposits / 12 months = $7,000 gross monthly income

With this monthly gross income figure, the lender will assess monthly debt payments to calculate the debt-to-income ratio and determine the loan amount you qualify for.

Recommended: Understanding Mortgage Basics

Who Should Get a Bank Statement Mortgage?

Prospective homebuyers who don’t have consistent cash flow or who lack proof of income from an employer, such as W-2s and pay stubs, could benefit from a bank statement mortgage.

Self-employed workers often claim tax deductions for business expenses to lower their tax liability, which makes their income appear lower on tax forms. Therefore, without using bank statements, many sole proprietors, contract workers, and freelancers will qualify for a smaller mortgage amount than they can actually afford.

Bank statement mortgage loans could also be advantageous for seasonal workers. Since gross monthly income is calculated as an average during the full time period covered by the bank statements, when the deposits occur within that time frame is less important. (Incidentally, if you’re seeking a personal loan, there are similar considerations to getting a personal loan when self-employed.)

Recommended: Understanding the Different Types of Mortgage Loans

Pros and Cons of a Bank Statement Mortgage

Bank statement mortgages represent an alternative to conventional mortgage loans that lends itself to self-employed and seasonal workers. But it’s important to consider the pros and cons when shopping for a mortgage:

Pros of Bank Statement Mortgage	Cons of Bank Statement Mortgage
Can qualify without W-2s, pay stubs, or tax returns	May require a higher down payment than other types of home loans
Often eligible for second homes and investment properties	Generally carries higher interest rates
Private mortgage insurance not required if the buyer puts 20% down	Not all lenders offer this loan product
May offer higher loan limits	Can require being in business for years to qualify

How to Find a Bank Statement Mortgage

Bank statement mortgages are considered non-qualified mortgages (non-QM), which means they may lack certain features and protections, so not every lender uses them. Though less common than traditional mortgages, many lenders, including banks and credit unions, offer bank statement mortgage loans.

Since bank statement loans are non-QMs, it’s natural to have questions about mortgage terms and requirements.

For instance, it’s worth asking about mortgage points — fees paid to a lender for a lower interest rate — since the limits on points and fees for a qualified mortgage don’t apply.

Recommended: Mortgage Calculator

Alternatives to a Bank Statement Mortgage

Prospective homebuyers have a range of financing options to choose from, even if they’re self-employed.

Getting prequalified and preapproved can give you an idea of how much home you can afford and a specific amount, respectively.

A mortgage loan originator will convey the loan terms you might qualify for and available financing options:

•   Conventional home loan: Conventional loans tend to come with competitive interest rates and are originated, backed, and serviced by private mortgage lenders.

•   FHA loan: Insured by the Federal Housing Administration (FHA) but administered by approved private lenders, an FHA loan allows for down payments as low as 3.5% and lower credit scores than conventional loans.

•   USDA loan: A USDA loan, backed by the U.S. Department of Agriculture (USDA), is designed to make homeownership affordable for low-income buyers in designated rural areas.

•   VA loan: Eligible service members, veterans, and eligible surviving spouses can obtain VA loans, guaranteed by the Department of Veterans Affairs (VA), with competitive interest rates, no down payment, and minimal closing costs.

If you’ve been self-employed for two years, or one year self-employed plus two years in a similar role with comparable income, you may still qualify for one of the above loans.

Recommended: Help Center for Home Loans

The Takeaway

Being self-employed doesn’t prevent borrowers from getting financing for a home purchase or refinance. A bank statement loan could be a solution if your tax returns don’t fully capture what you can afford. But you may also qualify for a conventional loan or other type of financing.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Are bank statement mortgages good?

Bank statement mortgages can be advantageous for self-employed homebuyers or refinancers, but they can have higher interest rates and down payment requirements. It’s worth checking to see if you’re eligible for conventional or government-backed loans first.

How much of a down payment is required for a bank statement mortgage?

Typically, bank statement loan lenders require a 10% minimum down payment. However, private mortgage insurance is required with a down payment of less than 20%.

Can I use a bank statement loan on a second home?

Yes. Bank statement loans can be used for a second home. You can also use them for vacation homes and investment properties.

Do bank statement mortgages work for refinancing?

Yes. Homeowners can refinance with a bank statement mortgage. This can also include applying for a cash-out refinance if you have enough home equity.

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Photo credit: iStock/PeopleImages

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

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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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Retail banking involves offering financial services to individual consumers rather than businesses or other banks. It encompasses a range of products and services, such as checking and savings accounts, mortgages, personal loans, credit cards, certificates of deposit (CDs), and more.

Retail banking differs from corporate banking, which is the part of the banking industry that serves large companies and corporate customers. Retail banks can be local community banks, online banks, or divisions of large commercial banks. Credit unions also offer retail banking.

Read on for a closer look at what retail banking is and how it differs from corporate banking.

What Is Retail Banking?

Retail banking, also known as personal or consumer banking, refers to financial services provided to individuals. This type of banking is designed to serve the general public and to help people and families manage their money, obtain credit, and save for the future.

Retail banks focus on making banking services easily accessible, either through physical branches, ATMs, and/or online platforms. These banks play a crucial role in the economy by offering checking accounts, high-yield savings accounts, CDs, loans, and other financial products that help individuals safely store, manage, and grow their money.

Though some retail banks also work with small businesses, retail banking is different from corporate banking (also known as commercial banking), which involves working with commercial entities, such as large businesses, governments, and institutions.

Most large-scale banks have retail banking divisions. Credit unions and smaller banks, on the other hand, may be exclusively focused on retail banking.

Recommended: 12 Things to Consider When Choosing a Bank

How Does Retail Banking Work?

Retail banking works by offering financial products and services tailored to consumers. These services are designed to help individuals and families manage their finances efficiently, save for the future, and access credit cards and loans. Retail banks make money primarily through interest on loans, fees for services, and charges for various banking products.

Features of Retail Banking

Retail banking offers a hub for all of your basic financial transactions. Here’s a look at some of the products and services they provide.

•   Savings and checking accounts: Retail banks offer savings and checking accounts to help individuals manage their money. Savings accounts typically earn interest, while checking accounts provide easy access to funds for day-to-day transactions.

•   Consumer loans: Retail banks commonly offer personal loans, auto loans, and home mortgages. These loans can help people finance significant purchases or investments, such as buying a home or car.

•   Credit cards: Retail banks issue credit cards that allow consumers to borrow money up to a certain limit for purchases. These cards often come with rewards, cash back, and other incentives.

•   Online and mobile banking: Retail banks typically provide online and mobile banking services, allowing you to manage your accounts, transfer money, pay bills, and access other banking services from your computer or smartphone.

•   Investment services: Some retail banks offer investment products, such as mutual funds, retirement accounts, and brokerage services, to help customers build wealth over time.

•   Customer service: Retail banks typically emphasize customer service. Many provide personalized financial assistance through branch staff, call centers, and online support.

Types of Retail Banks

Retail banks come in various forms, each catering to different customer needs and preferences. Here’s a look at some of the main types of retail banks:

•   Commercial banks: Many people access retail banking through one of the large commercial banks, which generally offer a retail banking division along with corporate banking services.

•   Credit unions: Credit unions are nonprofit financial institutions owned by their members. They often provide similar services to commercial banks but with a focus on serving the financial needs of their members, usually offering lower fees and better interest rates.

•   Online banks: Online banks operate exclusively online, without physical branches, though you typically have access to a partner network of ATMs. They often offer higher interest rates on savings accounts and lower fees due to reduced overhead costs.

•   Community banks: Community banks are smaller, locally-focused institutions that prioritize serving the needs of their local communities. They offer personalized customer service and often have a strong understanding of their local markets.

Recommended: Big Banks vs Small Banks: Key Differences

How Is Retail Banking Different From Corporate Banking?

Retail banking and corporate banking represent two different sectors of the banking industry, each serving different customer bases and offering different services.

Retail banking focuses on individual consumers, providing them with products such as bank accounts, personal loans, and credit cards. Corporate banking, on the other hand, serves businesses and corporations, offering services such as business bank accounts, commercial loans, trade finance, and employer services.

Transactions in retail banking are typically smaller in size and higher in volume compared to corporate banking, which tends to focus on larger, more complex transactions.

If you’re wondering whether you would be better served by retail vs. corporate banking, here’s a snapshot of how the two compare.

	Retail Banking	Corporate Banking
Client base	Individual consumers	Businesses, institutions, banks, government entities
Products and services	Personal checking/savings accounts, mortgages, personal loans, credit cards	Business accounts, business loans, merchant services, global trade services, employee benefits plans
Loan amounts	Lower	Higher
Transaction frequency and amounts	High number of transactions for low amounts	Low volume of transactions for more significant amounts

The Takeaway

Retail banking is the public face of banking that provides banking services directly to individual consumers rather than businesses or other banks. Most of us bank at a retail bank or a retail division of a large commercial bank, whether we realize it or not.

Whether you use a brick-and-mortar bank, online bank, or credit union, retail banking offers products and services that allow you to manage your money, access credit, save for the future, and work toward your financial goals.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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, named the #1 Bank in the U.S. for the fourth year in a row by Forbes (2026).* Enjoy up to 3.30% APY on SoFi Checking and Savings.

FAQ

What is an example of retail banking?

An example of retail banking, also known as consumer banking, is when an individual opens a savings account at a local bank. The bank then allows them to deposit funds, withdraw money, and earn interest on their deposits. The same bank might also offer them a checking account for daily transactions, a mortgage to buy a home, and a credit card for everyday purchases. These services are all examples of retail banking, which aims to meet the personal financial needs of individual consumers.

What are the largest retail banks?

Some of the largest banks in the U.S. that offer retail banking include:

•   Chase

•   Bank of America

•   Citibank

•   Wells Fargo

•   U.S. Bank

•   Capital One

•   Marcus by Goldman Sachs

•   PNC Bank

•   Truist Bank

•   TD Bank

Who uses retail banking?

Retail banking is used by individual consumers to manage their personal finances. This includes:

•   Students

•   Young adults

•   Working professionals

•   Couples

•   Families

•   Retirees and seniors

•   Small business owners

What are the retail banking products?

Retail banking offers a variety of products and services tailored to the financial needs of individual consumers. These may include:

•   Savings accounts

•   Checking accounts

•   Personal loans

•   Mortgages

•   Credit cards

•   Certificates of deposit (CDs)

•   Online and mobile banking services

•   Debit cards

•   Investment products

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About the author

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Photo credit: iStock/Passakorn Prothien

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 3/31/26. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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 every 31 calendar days.

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 the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, 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 the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit 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, Wise, 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 Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
We do not charge any account, service, or maintenance fees for SoFi Checking and Savings. We do charge transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
^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.

*Awards or rankings from Forbes are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.


¹SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at SoFi.com/banking/fdic/sidpterms. See list of participating banks at SoFi.com/banking/fdic/participatingbanks.

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.

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.

SOBNK-Q126-140

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An electronic check, or eCheck, is an electronic version of a paper check. Instead of writing out a check and handing (or mailing) it to the recipient, you enter your banking information and the payment amount online and authorize a transfer of funds from your bank account to the payee’s bank account.

Electronic checks are a fast, safe, and convenient form of payment, but they do have a few downsides. Here’s what you need to know.

What Is an Electronic Check (eCheck)?

An electronic check, or eCheck, is an electronic money transfer designed to perform the same function as a traditional paper check. You can often use an eCheck to pay bills, shop on an online marketplace, or make other types of payments.

To issue an eCheck, you need to provide your bank account number, the bank’s routing number, and the payment amount, and then authorize the transaction by accepting a website’s terms and conditions. The eCheck is then processed by the Automated Clearing House (ACH), a secure system that facilitates electronic payments and money transfers between banks. Once authorized, the funds leave your checking account and get deposited into the payee’s checking account.

Since an eCheck is in an electronic format, it can be processed in fewer days than a traditional paper check. Electronic checks also generally have more security features than standard checks, including authentication, digital signatures, and encryption.

How Does an eCheck Work?

The process of paying by eCheck involves three basic steps:

•   Authorization: First, you need to fill out your eCheck through an online payment portal. You then click “Submit,” which authorizes the payee to withdraw the payment amount from your checking account. In some cases, you can provide your banking information and authorize an eCheck over the phone.

•   Processing: The business’s payment processor receives the eCheck and sends a payment request to the ACH network. The ACH network then confirms that the funds are available in your account.

•   Settlement: Once the transaction is verified and approved by the ACH network, the funds are transferred from your account to the payee’s account.

How Long Does an eCheck Take to Clear?

The time it takes for an eCheck to clear can vary. It can take approximately three to six business days, though some may clear faster than that., The reason for the potentially longer processing time is that the ACH network processes payments in batches, not one by one. Once the eCheck processing starts, the network has to verify your bank information and perform security checks, which can sometimes take a few days.

Also, keep in mind that eChecks aren’t processed on weekends and holidays. So if you send an eCheck on a Friday, the payee may not receive the funds until the middle or end of the following week.

Recommended: Cleared Funds: Definition and Breakdown of Funds Clearing Time

Advantages and Disadvantages of eChecks

Note that eChecks have a number of advantages, but also a few drawbacks. Here are some things to keep in mind.

Advantages

•   Cost-effective: Electronic checks are often cheaper than paper checks, since you don’t need to pay for paper checks or stamps. And unlike using a credit card (which may come with a surcharge), eChecks generally don’t trigger a processing fee.

•   Convenience: Electronic checks eliminate the need for physical checks, reducing the time and effort required for writing, mailing, and processing paper checks. You can quickly initiate and authorize them online or over the phone.

•   Security: Electronic checks offer enhanced security features, such as encryption and authentication, to protect sensitive financial information. This reduces the risk of fraud and unauthorized transactions.

•   Environmentally friendly: eChecks contribute to environmental sustainability by minimizing paper waste and the resources required for printing and mailing.

Disadvantages

•   Clearing time: Electronic checks can take several days to clear, which may be longer than for other electronic payment methods. This can be a drawback for those who require immediate access to funds.

•   Possibility for errors: While eChecks reduce the risk of errors compared to paper checks, there is still a possibility of making a mistake in entering your bank account information or routing numbers. Such errors can delay the transaction process.

•   Limited acceptance: Not all businesses or individuals accept eChecks as a form of payment. This can limit the usability of eChecks in certain situations.

•   Potential for fraud: As with any electronic payment method, eCheck payment may be subject to fraud or unauthorized transactions. You want to be sure to share your bank account information only with trusted merchants.

What’s the Difference Between ACH and eChecks?

The terms ACH and eCheck are often used interchangeably, but they refer to different aspects of the electronic payment process.

ACH (Automated Clearing House): ACH is a network and system used for processing a wide range of electronic payments, including electronic checks. The network facilitates the transfer of funds between banks and ensures the secure processing of transactions.

Electronic check: An eCheck is a specific type of payment that is processed through the ACH network. It’s an electronic version of a traditional check and involves the transfer of funds from one bank account to another.

In short, the ACH network is the infrastructure that enables various types of electronic payments, including eChecks. An eCheck is a type of transaction that uses the ACH network for processing.

Is Paying by eCheck Safe?

Yes, paying by eCheck is generally considered safe, thanks to several security measures in place. Most notably, eChecks use encryption to protect your sensitive financial information during transmission. This ensures that the data is secure and cannot be intercepted by unauthorized parties. Electronic checks also require timestamped digital signatures to help prevent fraud.

Recommended: Are Mobile Payment Apps Safe?

The Takeaway

Electronic checks are essentially the digital version of traditional paper checks. These checks are facilitated by the ACH network, an electronic network used by U.S. financial institutions. Funds are electronically withdrawn from the payer’s checking account, transferred over the ACH network, and deposited into the recipient’s checking account.

Electronic checks are a safer alternative than paper checks and also faster to clear and cheaper to issue. However, eChecks take longer to process than paying with a debit or credit card, and they aren’t accepted everywhere.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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, named the #1 Bank in the U.S. for the fourth year in a row by Forbes (2026).* Enjoy up to 3.30% APY on SoFi Checking and Savings.

FAQ

How do I pay with an eCheck?

The process of paying with an eCheck mirrors that of writing a traditional check, but in a digital format. If the business you’re paying accepts eChecks, you simply need to enter your bank account number, the bank’s routing number, and the payment amount on a secure online payment portal. You then authorize and submit the eCheck.

Does it cost money to send an eCheck?

Not typically. Merchants generally have to pay a small processing fee for accepting eChecks, but this cost is not usually passed on to the consumer.

Can you reverse an eCheck?

Yes, but you have to act quickly. To reverse an eCheck, notify your bank as soon as you know you want the payment halted, ideally within the same day you initiated it. Once the payment clears, your bank may not be able to reverse the process.

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About the author

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Photo credit: iStock/kazuma seki

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 3/31/26. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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 every 31 calendar days.

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 the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, 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 the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit 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, Wise, 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 Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
We do not charge any account, service, or maintenance fees for SoFi Checking and Savings. We do charge transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
^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.

*Awards or rankings from Forbes are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.


¹SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at SoFi.com/banking/fdic/sidpterms. See list of participating banks at SoFi.com/banking/fdic/participatingbanks.

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.

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.

SOBNK-Q126-144

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