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.