What difference does 1% make?

Aug 2022 | Auto Loan, Featured, Financial Education

When getting a new loan, the first thing most people do is shop around for rates. But does a slightly better rate actually save you that much throughout the life of the loan? Let’s find out.

Depending on your term, principle, and down payment, a 1% difference in rates could save you thousands of dollars.

For example, say you are purchasing a new $40,000 car with a 6-year term. At a rate of 4.24% APR, your monthly payment is $630 and you will pay a total of $5,373 in interest. At a rate of 3.24% APR, your monthly payment is $612 and you will pay a total of $4,067 in interest. That means not only is your monthly payment lower, but throughout the life of the loan, you will save $1,306 in interest!

Now, lets break that down a little more. At the lower rate, you’re saving $186 per year, and about $15 per month on interest payments. After breaking down the savings, it is up to you to decide whether it is worth it to potentially have to open an account with a new financial institution, or possibly go through the slight effort to set up a new direct deposit.

Brown dog in passenger seat of car. Young woman in driver seat has one hand on steering wheel and one hand on dog.

Now, the example we looked at is a relatively small loan, with relatively low interest rates. What happens if you purchase a $200,000 RV and you are between a rate of 6.49% APR and 5.49% APR? Let’s say we do a 12-year term. At a rate of 6.49% APR, your monthly payment will be $2,002 and you will pay a total of $88,402 in interest. At a rate of 5.49% APR, your monthly payment will be $1,899 and the total interest paid will be $73,502. This means that throughout the life of the loan, you will save a total of $14,900 in interest!

Again, let’s break it down a bit. At the lower rate, you will save $1,241 per year and $103 per month! Think about all the s’mores ingredients you could buy and enjoy in your new RV with that savings.

Clearly a 1% rate difference can save you a significant amount throughout the life of the loan.

How do you determine these savings for yourself? Alaska Air Group Credit Union has a collection of financial calculators to help you crunch the numbers!

Financial Calculators

Please note, the payment examples represented in this article are estimated calculations and are not quotes for a loan through Alaska Air Group Credit Union. 

 

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