MadameNoire
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A loan is a commitment. It might be in your life for many years. It may be just a few years, or it may be several decades. Personal Finance company SoFi reports that the average repayment period for student loans is 20 years. Most car leases range from 24 to 36 months, and reports show that the average monthly payment has crept up to well over $400 in recent years. Meanwhile, if you’ve watched many commercials lately, you’ve seen that a lot of car companies are extending the terms of their lease – offering payment plans that go into the 72-month range. That may seem like it makes the payment more doable but…does it? Or do you just wind up paying much more in the long run?
Lenders are great at making numbers look phenomenal. They also make some of the smallest small print out there. And only once you’ve been enticed by some “perfect deal” are you hit with a massive contract that has you signing what feels like your life away. If you default on a payment, the same people who were so nice to you when you took it on can suddenly become pretty nasty. This article is not written from the standpoint of a mortgage officer, banker, or lender of any kind. This comes from the perspective of a woman who, in the last 15 months, had to refinance student loans and pay off part of a car lease early all to make a mortgage work only to fail to get a refinance on that due to other debt. This comes from a consumer – a borrower – who felt that the professionals didn’t give her the full scope of things. These are questions I wished I’d asked on the several loans I currently have.
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Can I improve my credit first?
Your credit score will be one of the biggest driving factors of the interest rate you get on your loan. The interest rate is, quite simply, the amount of money you’re going to spend on your money. This infographic from In Charge Debt Solutions shows just what a big difference your interest rate makes on what you pay over time for your loan. On a $150,000 30-year mortgage, the difference between a rate of 3.2 versus 4.8 (which is what great credit vs poor credit will get you) amounts to just shy of $50,000 more spent over the term of the loan. And let’s not forget that it’s very hard to find a house that cheap, so you can multiply that number a couple of times over for a more realistic view of how your credit score, and your resulting interest rate, affect what you pay. That shows you the importance of asking if there is any way to improve your credit before locking in a rate. We cover some ways to do that here.
