Loans come in all shapes and sizes, from large to small, every loan is unique. Some may use a loan to buy a house, some may use a loan to buy a car. No matter, what the loan is, everybody has to pay interest. However, not all interest rates are the same.
Interest rates vary in many ways. The first being terms. Terms means the years it takes to pay the loan back. Lets say you want to buy a car with an interest rate of 7.75%, the trending rate of a new car. At $51,540 for a basic new car, the monthly payment over 5 years is $1,032.62. Total interest payment over the 5 years is equal to more than $10,000. Over all, $61,000 goes to the banks, and eventually the car is paid off. Essentially, you have to pay 20% of the value of the car just in interest. Isn’t Inflation Fun?
Now looking at a mortgage, an average, rate with decent credit, is over 8.50%. The average cost of a house in the U.S in 2023 is $412,000. Over 30 years, compound is equaled out to roughly 1.5 million dollars. In total interest, you are paying $728,000. The monthly payment for a house is roughly $3,167.92. Annually that’s about $38,015.4. 360 monthly payments must be made to pay a house off.
Interest rates vary however, depending on credit. A decent credit score will land you with a managable interest rate. However, anything below 580 will leave you drowning in debt. Due to insane inflation and almost no new jobs in the U.S, most people have terrible credit scores and much of the country is actually starving in debt. However, to answer the question, interest rates vary due to different loans and situations. Things like term and credit affect the interest and large purchases must but though through.
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