Understanding the Real Cost of Your Credit Score
Today, every financial institution charges interest to borrowers as a return for lending money. The amount you borrow (the principal) + interest + length of your loan (term) = your total cost of credit.
Let’s assume two people borrow $20,000 for five years (60 months) to purchase a vehicle. Borrower #1 has a high credit score, allowing them to have a lower interest rate. Borrower #2 has a lower credit score, which will make their interest rate much higher:
- At 2.9% interest, the first borrower will pay a total of $21,509.62 for this vehicle by the end of the loan.
- At 14.9% interest, the second borrower will pay a total of $28,487.49 for this vehicle by the end of the loan.
Based on this example, you can see that not taking care of your credit comes at a large cost. By simply taking care of your credit you would save nearly $7,000!!