When you obtain a new loan, there are many things to consider. Can you afford the monthly payment? How long will it take to pay off the loan? One key factor in answering both questions is determining what your interest rate will be. The interest rate accounts for the full finance charges, or in simple terms, how much extra you will be paying back for borrowing the funds.

First, interest rates are dependent upon credit score, type of loan, and the length of term. You will typically see loans with collateral, such as auto or RV loans, offering lower rates because there is a piece of security involved. These loans present less risk and offer something a lender can attach a lien to, which increases the probability of repayment.

With unsecured loans, interest rates are based on the borrower’s credit worthiness or “signature.” This type of loan involves more potential risk to the lender and is therefore accompanied by higher interest rates.

In terms of credit scores, higher scores receive lower rates due to the borrower’s payment history and proven ability to pay back. The more positive credit history you have, the higher your score, which helps you qualify for lower rates due to being seen as an established borrower.

For ways to improve your credit score, check out our previous blog:
5 Tips for Improving Your Credit Score | Wayne Westland Federal Credit Union (wwfcu.org)

It is also important to understand how interest is calculated on your new accounts.  This will tell you if you can pay more than the minimum payment or pay off early without any penalties or fees. Ask up front and make sure to read the fine print on your contract. If there is no prepayment penalty, paying extra towards your loan each month (if affordable) will help you save on the overall interest of the loan. This is due to the principal balance being paid down faster. Also, it is important to note that any modifications made to your loan (skip-a-pays, extensions, or deferrals) will increase your overall repayment term. Interest is still accruing during this modification period, so this will affect your overall finance charge as well.

WWFCU offers competitive rates on many loan products. We will also match or beat any rate, as well as offer refinance opportunities to help you save money! Another benefit is that WWFCU doesn’t charge any prepayment penalties or fees for early payoff on loans you finance with us.  Speak to one of our representatives today to get a payment projection or loan application started.