I mentioned briefly in a previous post that you have to pay for your credit. In other words in order to keep your score up and active you must maintain loans by paying interest to institutions for these loans. On the other side of the scale you are paying more in interest if you don’t have a decent score. It’s a necessary evil if you ever want to be considered for that forever home you have been dreaming of. I myself have a couple loans that I don’t need in order to keep my credit on the up and up.
It’s true that the higher your credit score is the more likely you are to be approved for what you are seeking. With your higher score you are less of a risk to the lenders and will receive a lower interest rate which computes to a lower monthly payment. You are probably right where you want to be and are paying the lowest of low rates, unconcerned with interest.
To everyone out there who have lower scores, you are not alone. I have seen more 400-500 credit scores than I have 800+. You may not get turned down for the loan that you are applying for but based on your score you have probably struggled in the past and working towards a better future. In the process you are going to pay more for your purchase over the life of the loan due to higher interest and larger payments.
Here is the dollars and cents to show you what I am talking about….
Mr. 800 and Mr. 500 both purchase a vehicle for $20,000 and have a term of 60 months.
Mr. 800 has an interest rate of 2.49% at $355 a month payment; that is $1,291.88 in interest. Mr 800 has paid $21,291.88 for the vehicle.
Mr. 500 has an interest rate of 18.00% at $508 a month payment; that is $10,474.21 in interest. Mr. 500 has paid $30,474.24 for the vehicle. That is just over half of what he originally purchased the vehicle for.
In the end you pay for your credit whether its to maintain it or because of it. It is more cost-effective to maintain rather than because of.
Leave me your thoughts