A few points on a credit score can mean the difference between a lender offering you a prime rate reserved for the best credit risks and the worse interest rate offered to less than prime customers, that is subprime loan.
Small Increases In Loan Interest Rates Could Make Great Impact
The first thought is that a few percentage points do not look hefty at all, but these few percentage points could create huge impact on your financial picture. This is especially true for large loan quantum such as home loans or car loans. Take for instance a home loan. A three to four percentage point difference would cause a incremental of USD1000 or more per month conservatively speaking. It is hence not difficult to visualize the eventual impact on your personal financial plan. Let us draw the example that you have taken a 20 year long term fixed rate loan. You could be losing out on USD1000 x 12 x 20 or USD240000 over the term of the loan for having bad credit rating. Or conversely you might be saving USD240000 for simply having good credit rating. The choice of course is yours. This is not even calculating the annualized compounded effect of interest savings rolled over the 20 years.
Fixed Rate Loan or Adjustable Rate Loans
Fixed rates as the name implies, means that you lock in the rate at inception of the loan and pay the same rate throughout the term of the loan. The above example is simple to calculate if you have a fixed rate long term loan. The rate is not affect by fluctuating market interest rates. Hence the payments are protected from market fluctuations. On the other hand, the payer would not be able to enjoy the lower rates when market forces drive down interest rates either. Conversely, the Adjustable Rate loan is a good way to take advantage of low interest rates and is chosen by homeowners as a way to qualify for a bigger loan than they may otherwise qualify for. Still, the adjustable rate loan is not without significant risk. As market rates change, so will your monthly payment. In some cases, this can make a significant difference in your payments. Hence should you have an adjustable rate loan you need to time the cycle very carefully to ensure that you benefit best from low interest rate scenarios and yet be able to redeem or refinance your loan package to lock in a fixed rate loan with more favorable interest rates before the interest rates start to hike. It is critical to boost your credit score by every percentage point you can and to fight for the very lowest interest rate loans you can. After all, if you have larger payments each month due to a higher interest rate than you deserve, it will be harder for you to repay your bills. Also, you will qualify for fewer loans if you have higher-than-needed interest rates, as you will be able to afford fewer of the larger monthly payments.
Joey Lee is a CFP and MBA with 17 years of banking, financial, business & marketing experience and a Platinum Ezine Author. Learn authentic Credit Repair skills and comprehensive information on Credit Repair Tips, credit reports, credit scores at CreditRepairSkills.org
Article Source: http://EzineArticles.com/?expert=Joey_Lee
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