The True Cost of Credit | Refresh Financial

The True Cost of Credit

We live in a society driven by credit. Not only used to gain access to funds, your credit history is used to open a bank account, rent a home, and get a job. The better one’s credit history, the easier and more affordable all of these become.

Many today are in a financial rut due to their credit, however for many the rut is so big that they don’t know they are actually in one – unable to build a strong financial future. Many, if they are able to access credit, are paying such high interest rates without realizing it. So, at Refresh we like to give people a fresh take on their finances and look at their financial choices from a short, and long term perspective. Let’s look at a few scenarios on the true cost of credit:

Your Mortgage

Mortgage Size: $250,000
Bad Credit Interest Rate: 8%
Monthly Payments: $1,908
Interest Paid over 5 Years: $94,821
Great Credit Interest Rate: 3%
Monthly Payments: $1,248
Interest Paid over 5 Years: $40,590

Long Term Savings Because of Strong Credit: $54,231

Think of what you could do with an extra $10,846 per year over five years!

Your Car Loan

Car Loan Size: $20,000
Bad Credit Interest Rate: 30%
Monthly Payments: $626
Interest Paid over 5 Years: $17,565
Great Credit Interest Rate: 5% (usually available through dealership financing)
Monthly Payments: $376
Interest Paid over 5 Years: $2,617

Long Term Savings Because of Strong Credit: $14,948

What makes this example even more costly is when you include the depreciation cost of the vehicle. With bad credit, you would pay $50,000 total for a car only worth around $7,000-$10,000 in five years (just as an example).

Your Payday Loan (Sorry, but I have to mention them)

Payday Loan Size: $1,500
Bad Credit Interest Rate: 599% (per year)
Bi-Weekly Payments: $345
Interest Paid over 5 Years: $8,985
Great Credit Interest Rate: 5% (for a bank loan of the same size)
Monthly Payments: $28
Interest Paid over 5 Years: $196

Savings Because of Strong Credit: $8,789

I think the above scenarios are jaw dropping examples of how your overall savings, and financial picture, can be dramatically altered with strong credit. So, what are you waiting for?

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