Bad Credit Cost Money

Let’s pretend.

Consider this example: with good credit and appropriate income you qualify for a loan amount of $150,000 with a conventional 30 year fixed rate product that is at 6%.

This means your monthly principal and interest payment will be approximately $899.33. Over a term of 30 years, or 360 months, you will pay out about $173,757.28 in total interest to the lender.

Now, imagine with not so good credit you have been offered an interest rate of 9.9% which will remain fixed over a 30 year period for the same loan amount, $150,000. Your principal and interest payment will be $1,305.29. The amount of interest that you will pay out over 30 years, or 360 months, is around $319,903.12.

You can easily see by this example that with good credit your monthly principal and interest payment is $405.96 less than the payment given to someone with bad credit.

Over one year that is a savings of $4,871.52. Having good credit pays!

Now the big numbers: the difference in interest is another house. May be your vacation home.

At a rate of 9.9% the interest at the end of the 30 year term is $319,903.12. With good credit scores you will have paid only $173,757.28. That is a savings of roughly $146,145.84. Enough money to finance a small cabin near a lake somewhere far away from civilization.