Interest Rates
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Any time you borrow money from an institution (lender), you are then responsible to pay them a percentage over the amount you owe them. “Nothing in this life comes for free” is a good way to look at it.
At the same time, not everyone pays the same amount of interest rate. It all comes down to your credit score/rating. You and your neighbor might be both borrowing 100,000 dollars. By the time you both pay back your debts, you might have paid a whole lot more than your neighbor did, if you have bad credit.
Lenders will commonly study your current financial situation. This means, amongst other things, that he will look at your credit score. You will be analyzed thoroughly, and the following ratings will come into play:
Credit scores, in the United States, range from 301 to 850:
- Excellent Credit: 750+
- Good Credit: 700-749
- Fair Credit: 650-699
- Poor Credit: 600-649
- Bad Credit: below 599
Different Lenders may apply their own definition of ranges. It all depends on how high of a risk they might see you as. Using a simple interest formula, this is how you can calculate how much you would be paying in interest rates:
Interest to be paid = Amount borrowed x annual interest rate x years to pay
Here’s an example: Let’s say you borrowed 50,000 at 4% annual rate for 10 months. Then your math would be: 50,000 x 4/100 x 10/12. This means that you’d be paying approximately 1,670 dollars in interest rates.
Once a year you are entitled to a free credit score online. Maintaining a close look at your finances will help you land the best interest rates out there.
When you see commercials on tv, or newspaper ads, from (for example) car dealerships offering low APR (annual percentage rate), or 0% APR, it doesn’t necessarily means that you will qualify. Always read the small print. Those offers are mostly for people with good to excellent credit score.