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How are interest rates calculated?

How Does Interest Work?

Interest is the price you pay to borrow money. When a lender provides a loan, they make a profit off of the interest paid on top of the original loan amount. Interest effects the overall price you pay after your loan is completely paid off. For example, if you borrow $100 with a 5% interest rate, you will pay $105 dollars back to the lender you borrowed from. The lender will make $5 in profit. There are several types of interest you may encounter throughout your life.

Does your Credit Score determine interest rate?

YES! Credit scores generally range from 300 (the lowest) to 850 (the highest). This number can make a BIG difference in determining whether you qualify for a mortgage or loan and the terms you are offered.

A higher score increases a lender’s confidence that you will make payments on time and may help you qualify for lower mortgage loan interest rates and fees. Additionally, some lenders may reduce their down payment requirements if you have a high credit score.



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