Does a higher interest rate on a loan or credit card really make that much a difference? Let’s break down the money difference in interest rate percentages and how much you are really paying for what you finance.
In 2006, my friend bought her boyfriend a brand new “crotch rocket” motorcycle for Valentine’s day. That’s a pretty nice gift! They walked (or drove, actually) off the lot after she financed it for $8,300. However, she was young and didn’t realize what her interest rate was on the bike. It was a whopping %23. When you are financing thousands of dollars… 23% adds A LOT to the total amount. So they bought the bike and everything was great until the first payment was due. After realizing the actual monthly payment over the life of the loan, she wasn’t nearly excited over the bike anymore as she was when they drove off of the lot. After everything was said and done; after paying off the loan and spending way more than the sticker price on the bike originally… she ended uppaying $13,000 and change. When it is that big of a difference, the exact dollar amount doesn’t even matter any more. Bottom line, she got ripped. That’s almost TWICE the amount that she originally thought she was going to be paying for it. “Ridiculous” is the only word to describe that situation.
People need to be more cautious of the interest rates on their loans and credit cards. Even a single point on a loan could add up to thousands of dollars. I have done a little research for all of you reading this, so check this out: If you get a $200,000 mortgage at a 5% interest rate (which is very good), over the course of 30 years, you will pay $1,073.64 per month. Now, let’s raise that to a $200,000 mortgage at 6%. Guess what that payment just went up to? You are now paying $1,199.10! I’m no mathematician by any means, but I have a calculator sitting right in front of me, so let’s do the math real quick. That is $125.46 extra per month for 30 years. Trust me, it builds up to a whole lot of money.
It’s painful to see the realization of these numbers, but you need to get the best interest rate you can every time you get a loan or apply for a credit card. Otherwise, you are simply wasting money. I don’t know about you, but I wouldn’t mind an extra $125.46 a month. Be cautious of what your rates are so you can be responsible with your money.
Author: Mike Clover
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