What is a good interest rate?
November 08, 2019
by James Mwombela
You may have heard that there are only two kinds of people: those who pay interest and those who earn it. In reality, we all likely end up occupying both sides of that equation.
The first thing to know about borrowing money and paying interest is that how much you pay depends on your credit score. Your credit score is kind of like your financial report card – it demonstrates to creditors your reliability as a borrower. The higher your score, the more desirable you are as a borrower, and the lower your interest rates will be.
What’s a good interest rate for home loans?
According to NerdWallet, the average is 4.1% for 30-year mortgages and 3.6% for 15-year mortgages as of October 16th. If your credit score is Good (670-739), aim for 3.75% for a 30-year mortgage or 3% for a 15-year mortgage. If your credit score is Fair (580-669), aim for around 4.75% for a 30-year and 3.125% for a 15-year. Visit NerdWallet’s comparison tool for personalized estimates. Getting approved for a mortgage with a Poor credit score is very difficult. Work to increase your credit score or look into FHA mortgages, which are more accessible because they are insured by the government.
What’s a good interest rate for a car loan?
According to Bankrate, the average interest rate for a new car loan is just over 5% for borrowers with a Good credit score, 7.91% for borrowers with a Fair credit score, and 12.17% for borrowers with a Poor credit score. For used car loans, average rates are 6.38%, 10.91%, and 16.78% respectively. According to NerdWallet, the best rate would be around 3% for those with Good or Excellent credit.
What’s a good credit card interest rate?
You may have noticed that credit cards charge much higher interest rates than car and home loans. That’s because car and home loans are secured debt – the car and home pose as collateral for the loans. If you decide not to make your payments, the bank repossesses the property and sells it to recoup as much of the loan as possible. Credit card debt, on the other hand, is unsecured debt. If you decide to stiff your credit card company, their only recourse is to sue you and hope to recover enough from you to make their efforts worthwhile. This makes it much more difficult for credit card companies to collect unpaid debts. Therefore, they demand a higher interest rate to compensate for the higher risk.
According to NerdWallet, credit card interest rates range from 12.9% for individuals with Good or Excellent credit to 24.9% for those with Fair credit. Credit Karma estimates your credit score and lets you shop for loans and credit cards based on your credit profile.
What’s a good savings account interest rate?
Now let’s talk about the more fun side of the interest equation – earning interest. Savings accounts allow you to set aside money for later while maintaining access to it when you need it. Banks compensate you for providing capital to them by paying you interest. Online banks tend to pay the highest interest rates, because the lack of brick and mortar branches decreases their costs. According to NerdWallet, the going rate for savings accounts at these banks is around 2%.
What’s a good CD interest rate?
Certificates of Deposit (CDs) are offered by banks and credit unions. These accounts pay you interest in exchange for your agreement to leave money in the account for a specific period of time. According to NerdWallet, a good interest rate for a one-year CD is 2.25%, and a good rate for a 3-year CD is 2.35%. You can use their comparison tool to shop for offerings in your area.