Chat with us, powered by LiveChat Financial Portfolio Part 3:Time value of money - Writeden

1. Finding and Measuring Your Credit Score

It is possible to know and follow your credit score on sites including AnnualCreditReport.com or Credit Karma, or through the bank’s online interface. These services offer your credit score from credit bureau such as Experian, Trans union, and Equifax. Having good credit accounts for many things such as the eligibility to borrow credit, the interest rates charged and it determines one’s financial status (Betterton and Subitch, 2024). Good credit rating basically proves to the lenders that you are worthy and that you can be assigned more benefits contained in the loan than being penalized through high interest rates.

2. Credit Rate Based on Credit Rating

The rates set today with the help of resources such as Bankrate.com indicate that people with the 600-level credit score will have the interest rate for the auto loan at the level of 9.00%. People with a 750-level credit score can afford a much lower interest rate, approximately, 4.00 %.

3. Interest Paid on an Auto Loan of $25000 for a period of 5 Years

For a $25,000 loan financed over 5 years, the total price of the car will vary based on the interest rate:

• At 9.00% interest (600-level credit score):

o Monthly payment: Approximately $515.79

o Total loan payment over 5 years: $30,947.26 as per reports including interest charged.

• At 4.00% interest (750-level credit score):

o Monthly payment: Approximately $460.61

o Total loan payment over 5 years: This The interest has brought the total bill of the company to $273,365.

So, increasing one’s credit score results in saving of $3,310.66 while repaying the borrowed amount.

4. Car Loan: Comparing with Credit Card Purchase

An auto loan generally costs less in interest than a credit card because it is a secured with the car itself. Auto loans also have definite repayment periods (for example 5 years) therefore, fixed monthly installments. On the one hand, credit cards tend to have higher rates of interest Charge and can contain revolving balances which means that more credit debt will be acquired if the balance is not settled completely at the end of the month (Moscato et al., 2021). Moreover, credit card is more costly in terms of payment because credit card balance increases on daily basis.

References

Betterton, R. and Subitch, R. (2024). Best auto loan rates in November 2024. Bankrate. Available at: https://www.bankrate.com/loans/auto-loans/rates/

Moscato, V., Picariello, A., & Sperlí, G. (2021). A benchmark of machine learning approaches for credit score prediction. Expert Systems with Applications, 165, 113986.