Loans such as mortgages, student loans or credit cards accrue interest and fees, meaning the borrower will pay back more than they originally borrowed. But just how much do those fees amount to over the life of any given consumer?
The average American will pay more than $130,000 in interest fees over their lifetime, according to a new study from Self, a credit building company. This varies significantly by region. The state where borrowers pay the highest interest fees is Hawaii, where Americans pay $272,326 over their lifetime, followed by California with $234,337. Contrast this with the state that pays the lowest amount of interest fees: Iowa with $93,416.
While interest fees can add up quickly, today's interest rates are at all-time lows. The loan that collects the highest level of interest due to its size, a home loan, can now be refinanced at a mortgage interest rate below 3% for a 30-year mortgage, saving homeowners thousands of dollars over their lifetime. Visit Credible to find your personal interest rate and use a mortgage calculator to see estimates on how much you could save.
You can lower your interest fees
Americans are paying thousands of dollars in interest fees, but they don’t always have to. There are several steps many can take to lower their interest rates or even eliminate interest at times. Knowing your financial goals and taking steps to avoid high annual percentage rates can save borrowers significant amounts of money.
Here are a few ways to lower your interest rates or even eliminate them altogether:
Refinance: Whether it is an auto loan, private student loan or mortgage loan, refinancing while rates are at historic lows significantly reduces what borrowers will pay over the life of the loan. But while rates are low now, they could begin to increase when the Federal Reserve moves to make rate adjustments as soon as next year. The Self study shows the highest amount of interest fees is spent on mortgage rates. Texans pay the most in auto loan interest at $22,475, and New Hampshire residents pay a total of $28,353 for student loans. Visit Credible to see what refinance options are available to you for your loan type from multiple lenders and to get prequalified in minutes with a low-interest rate without affecting your credit score.
Raise your credit score: One reason you may want to compare options without affecting your credit score is because lowering your credit score will only increase the amount borrowers will pay in interest fees. Those with excellent credit scores pay more than five times less in interest fees than borrowers in the subprime category, according to the Self study. For those with credit less than 620 (the minimum credit score needed for a home loan), the average lifetime interest payments jumps to $486,040. Compare this those with a credit score between 760 and 850, where borrowers pay just $88,388 over their lifetime.
To keep track of your credit score and learn how to use it, consider a credit monitoring service. Through Credible’s partner Experian, you can even add cell phone bills, utility bills and even some streaming services to your credit report to help you boost your credit. Visit Credible to get started and find out how to improve your score.
Transfer credit balances: If you have accrued high-interest credit card debt, paying it back down can be difficult since much of your payment is going toward the interest fees. For this scenario, a balance transfer credit card can help pay down debt since it typically offers an initial 0% interest on all transfer balances for the first six to 18 months. This allows borrowers to pay it down without accruing new interest. Visit Credible to compare multiple credit cards and terms at once and choose which one is best for you.
Choose personal loans over credit cards: If you need to take out a line of credit for a purchase, a personal loan may be a better option than a revolving credit line such as a credit card. It will have a lower interest rate and does not have the opportunity for you to continue adding new expenses to the card, which will continue to build more interest. If you are interested in viewing your personal loan options for various loan amounts, visit Credible to speak to a lending expert and get additional information.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at firstname.lastname@example.org and your question might be answered by Credible in our Money Expert column.