You’ve heard us talk about our low rates and how they can help you save, but how exactly does that work? Read on to learn about how interest rates impact the cost of a loan and see examples of how lower rates can save you money both now and in the long run.
When you’re borrowing money from a financial institution, you’ll typically have to pay that money back, with interest. Traditionally, your monthly payments go toward both repaying the principal (the original amount you borrowed) and paying interest on the amount you’ve borrowed. The interest rate – also referred to as APR (Annual Percentage Rate) – you’re given has an impact on the total cost of the loan, as it determines how much interest you’ll pay.
In addition to the interest rate itself, there are other factors that impact how much interest you’ll pay on a loan, both on a monthly basis and over time. These factors include:
While these other factors play a large role in how much interest you’ll pay over time, the actual interest rate, or APR, is often the most impactful when considering the total cost of a loan. Take a look at the following examples to see how choosing a loan with a low interest rate can lead to significant savings.
In a perfect world, you wouldn’t spend more than you have. At times, however, you may find yourself needing to carry a balance on a credit card to make ends meet or to purchase necessities, like groceries or an unforeseen car repair. In either case, it’s especially important to choose a credit card with a low APR to minimize how much you’ll need to pay back.
Consider the following scenario where you have a $5,000 balance on your credit card. The table below shows how various APRs can impact the time it would take to pay it off, as well as the total amount of interest paid.
In the table above, you can see the impact that APR has on the length of time to pay off debt, as well as the total interest paid. Considering that the national average APR on a credit card currently sits at about 16%, you can also see how choosing one of our credit cards could save you thousands of dollars if you’re planning to carry a balance.
Consider the following example of a $20,000 car loan. The table below shows how various interest rates impact not only your monthly payment, but the total cost of the car, for a five-year (60 month) car loan.
Again, our low auto loan rates allow for savings when compared to other APRs you may see when shopping around for a car. We also offer auto loan refinancing for both existing PSECU auto loans and auto loans that are rolled over from other financial institutions. Lowering your rate can help you keep the car you’ve come to love, while creating some extra room in your budget.
A mortgage is likely the largest loan you’ll take out. Even seemingly small increases in interest rates can lead to notably increased costs when you’re borrowing such large amounts of money.
The example below shows how APR impacts monthly payments and total home cost when taking out a 30-year, $200,000 mortgage.
While it may not sound like much to increase your mortgage rate by 1% or less, as you can see in this table, the financial impact is significant in both the short and long term.
Whether you’re in the market for a car, shopping for a home, or need to utilize credit cards or transfer high-interest credit card debt, we have loan options that can help save you money. Check out our current rates and contact us today to get started. For more money management resources, visit our blog.