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.
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.