3 Ways Your Credit Score Impacts Your Interest Rate Options
Your credit score is more important than you might think. While it might not come into play on a daily basis, your credit score will dictate what types of loans you can get approved for, how much money you’re eligible for, and what your interest rates will be.
But why are your interest rate options a big deal? If you’re not planning on making any big purchases or taking out a loan, why does your credit score matter?
The truth is, life is full of unexpected twists and turns. You may not think you need a new car now, but what if you total your current vehicle or the engine fails? Conversely, what if you meet someone with whom you want to settle down and make a new life?
In other words, you never know when you’re going to need to borrow money. And your ability to do so is directly impacted by your credit score. Keep reading for three ways in which having a good credit score will prove beneficial.
1. Home Loans
First, let’s talk about buying a house. Homes are one of the biggest investments you can make as an adult. Usually, we’re talking about loans ranging from $150,000 to $500,000 or more.
Your credit rating will determine your interest rate options for your mortgage. This is a big deal because mortgages are large loans with long-term payment plans. The higher your interest rate is, the more you’ll pay throughout the years.
For example, a $250,000 loan over 30 years at 5% interest, your total payoff amount will be $483,139.46. Conversely, if you had the same loan at 3% interest, your total payoff would only be $379,443.63. In essence, you would save over $100,000 over the life of your loan by getting a smaller mortgage interest rate.
2. Personal Loans
Having a good credit score will also provide you with better interest rate options for personal loans. Personal loans are a great source of financing for a large number of purchases. For example:
- Furnishing a new home or apartment
- Paying for auto repairs
- Paying for home maintenance or renovations
- Going on a vacation
- Opting for a selective surgery or medical procedure not covered by insurance
- And more
However, having bad credit will not only limit your interest rate options. In some cases, it might make it impossible to get a personal loan at all. If you find yourself in this situation, work with a credit repair company to help you improve your credit score.
3. Car Loans
Finally, your credit score range will affect your ability to get an auto loan with favorable interest rate options. While these loans aren’t as large as mortgages, they are still quite sizeable.
Of course, if you have poor credit, you’ll also be limited on how much money you can get for a car. For consumers with super low credit, the only viable option could be used cars under $10,000.
Higher credit, on the other hand, will grant you access to newer, more reliable cars. Just importantly, you’ll be eligible for better loan terms and interest rates.
Are You Unhappy With Your Interest Rate Options?
As you can see, your credit score plays a significant role in everything related to finance. Whether you’re looking for personal loans, car loans, or home loans, bad credit means poor interest rate options. Over time, you’ll pay out way more money on these types of loans.
For more financial planning advice and credit guidance, don’t go anywhere. We have tons of content created to help people like you make better financial decisions, improve credit scores, and more.