So we decided to take a look at just how much money you can save – or spend- depending on small interest rate changes with different types of debt. Thanks to debt calculators at BankRate.com, we have some telling statistics for you.
"But wait, how do I GET the best interest rates?" you may be asking. You can’t control where interest rates are these days, but what you CAN control are the factors that will allow you to get the BEST interest rates, no matter what the market is doing, and the most important is your credit score.
Let’s assume that today’s national averages are around 4.5% on a 30-year fixed mortgage loan. By the way, those rates are near historical lows as the all time national average is closer to 7.5%. So if we compare those two numbers on a $250,000 home purchase over 30 years…
Loan amount: $250,000
Interest Rate: 7.5%
Term: 30 years (360 months)
Monthly Payment: $1,748
Total Payments: $629,280
Total Interest Paid over Life of Loan: $379,280
Or…now, let’s look at that same home loan but with a good interest rate these days, 4.5%.
Loan amount: $250,000
Interest Rate: 4.5%
Term: 30 years (360 months)
Monthly Payment: $1,266
Total Payments: $455,760
Total Interest Paid over Life of Loan: $205,760
Total Savings: $173,520
Loan amount: $29,600
Interest Rate: 3.9%
Term: 10 years
Monthly Payment: 298
Total Payments: $35,760
Total Interest Paid over Life of Loan: $6,160
Or…let’s look at a typical interest rate for a private student loan or for a borrower with marginal credit.
Loan amount: $29,600
Interest Rate: 7.75%
Term: 10 years
Monthly Payment: 355
Total Payments: $42,600
Total Interest Paid over Life of Loan: $13,000
Total Savings: $6,840
Car loans:
Loan amount: $25,000
Interest Rate: 4.5%
Term: 5 years (60 months)
Monthly Payment: $466
Total Payments: $27,960
Total Interest Paid over Life of Loan: $2,960
Or…
Loan amount: $25,000
Interest Rate: 7.0%
Term: 5 years (60 months)
Monthly Payment: 495
Total Payments: $29,700
Total Interest Paid over Life of Loan: $4,700
Total Savings: $1,740
Credit cards:
Loan amount: $20,000
Interest Rate: 18.0%
Monthly Payment: $500
Term: 62 months
Total Payments: $31,000
Total Interest Paid over Life of Loan: $11,000
Or…
Loan amount: $20,000
Interest Rate: 10.0%
Monthly Payment: $500
Term: 49 months
Total Payments: $24,500
Total Interest Paid over Life of Loan: $4,500
Total Savings: $6,500
***
If we add up all those loans with lower interest rates compared to their higher-interest counterparts, we see that you’ll save $188,600 by the time you’ve paid everything off.
Even if you take out the big loan – the home mortgage – you’ll still have saved $15,080 on your auto, student, and credit card loans.
Those are HUGE numbers and now multiply it by how many cars/kids in college/credit cards your family has. Even bigger, think about the power of if you used that savings to get out of debt sooner by paying these loans down faster and then used the extra time/money to fund investment that actually brought you a rate of return! The final outcome can be staggering – literally allowing families to live comfortably and retire early versus struggling with bills and finances every month.
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