Why Credit Still Matters: Part II

In today's installment of "Why Credit Still Matters," we will illustrate the effect that interest rates have on auto loan payments. As discussed in the first installment of this series, the interest rate is typically determined by your credit score.

Sample auto loan payments based upon a loan amount of $25,000 and a term of 48 months.

A.)

Interest Rate

3.88%

Monthly Payment

$563.13

Total Interest

$2,030.48

Total Payment

$27,030.48

B.)

Interest Rate

7%

Monthly Payment

$598.66

Total Interest

$3735.49

Total Payment

$28,735.49

C.)

Interest Rate

15%

Monthly Payment

$695.77

Total Interest

$8396.90

Total Payment

$33,396.90

D.)

Interest Rate

20%

Monthly Payment

$760.76

Total Interest

$11,516.43

Total Payment

$36,516.43

Some of the options available to lower your interest rate and reduce your total costs:

1. 10-20% down payment.
2. Buy down the interest rate.
3. Manufacturer cash rebates.
4. Apply at your bank or credit union despite your credit history.

In the next installment of "Why Credit Still Matters," we will be discussing bankruptcy.

Why Credit Still Matters: Part I

This is the first installment in our "Why Credit Still Matters" series. We will begin with a breakdown of the credit scoring system and what credit score ranges generally mean when you desire to have more credit extended. Credit scores typically range from a low of 300 to a high of 900.

Credit Scores Description

800+- Excellent credit score. You should qualify for the best interest rate and loan terms.

730 – 799- Great credit score. There will not be any problem in getting a loan at a good interest rate.

680 – 729- Good credit score. You should qualify for a loan at a good interest rate.

580 – 679- Average credit score. You may qualify for the loan but not at a good interest rate.

500 – 579- Bad credit score. You will have a tough time getting a loan or a credit card.

Below 499- Very bad credit score. It is doubtful that you will qualify for a loan or a credit card.

Factors that may affect your credit score are the following:

1. Payment history
2. Amount currently owed
   
3. Credit balance to amount of available credit ratio
   
4. Foreclosure
5. Bankruptcy
6. Auto repossession
7. Child support order
   
8. Length of time remaining on current loan obligations
9. Credit history (i.e. how long have you been using credit)
   
10. No credit history
11. Late payments

In the second installment of the series, we will consider different monthly and loan lifetime payment scenarios based upon credit scores as well as options to lower payments when your credit is average and below.