Credit Scores: Why Pay More?

By Josh Prejean, 
Vice President, Bank of Zachary
    When financing a purchase, such as a new car or your next home, lenders will review your credit history and make their decision based on how you have paid loans in the past. The interest rate you are offered can vary greatly depending on your credit score.
    Borrowers with better credit scores get better interest rates, everything else being equal. Let’s
take a look at how your credit score, which affects your rate, impacts what you pay back over the life of the loan.
    Three customers walk into a car dealership to purchase a $30K vehicle:
• Customer A has excellent credit and receives an interest rate of 4%. Financed over 66 months, this customer would pay about $507/month which works out to about $33,500 over the life of the loan.
• Customer B has average credit and receives an interest rate of 8%. Financed over 66 months, this customer would pay about $563/month which works out to about $37,200 over the life of the loan.
• Customer C has below average credit and receives an interest rate of 12%. Financed over 66 months, this customer would pay about $623/month which works out to about $41,100 over the life of the loan.
    All three customers are buying the same $30K vehicle, but Customer A would end up paying about $7,600 less than Customer C over the life of the loan!
    While this example is based on an automobile, the principle applies to any financed purchase including a house, a boat, or even a lawnmower. Your credit score has a major impact on your interest rate and having poor credit can cost you a whole lot of money. Before financing your next big purchase, we recommend pulling your own credit report from the three major credit reporting agencies (Equifax, Transunion, and Experian) and know where you stand before you apply.