Select’s editorial team works independently to analyze financial products and write articles that we believe will be useful to our readers. We may receive a commission when you click on links to our affiliate partners’ products.
If you have not already done so, you will most likely be borrowing money from big banks at some point in your life.
While having a “debt” can have a negative connotation, getting a loan opens up a variety of possibilities for you. Student loans help you fund your college studies so you can get your dream job, while a mortgage loan will open the door for you to your first home. Not to mention, paying all those monthly bills on time helps improve your credit ratingso you can get more funding in the future.
Despite the benefits of accessing different types of loanshowever, interest payments on various loans will certainly add up over the course of your life.
To choose analyzed the interest paid by consumers on loans, which are usually taken throughout life. We found that the average American with a home mortgage with an average price, one used car payment, an average credit card balance, and the burden of a student loan could end up paying $ 164,066 in fair interest over the course of his life.
This 6-digit number does not include any additional mortgages or car loans, or other types of financing such as personal loanwhich you can get when you renovate your home or make a major purchase. For this reason, the total amount of interest you pay may be even higher.
Below is a breakdown of how we calculated the total interest paid on mortgages, car payments, student loans, and credit card debt over the life of the average American.
To calculate the mortgage interest paid over a lifetime, we used the average selling price of a new home sold in the United States in the second quarter of 2021, which was USD 374,900… Keep in mind that interest will change for those homeowners who have not bought a home this year.
Average Annual interest rate for a reference 30 year fixed rate mortgage 2.78% at the time of this writing. Using Bankrate mortgage calculatorWe found that someone buying a home at an average price with a typical 20% down payment must pay $ 142,614.31 in interest over the 30-year term of their mortgage. This does not take into account any tax deductions for mortgage interest that you can qualify for homeowner status, which can lower your annual tax burden.
How High Yield Savings Can Help Lower the Interest You Pay
Consider investing more money in your down payment primarily so that you can afford to take out fewer mortgages and possibly get a lower interest rate.
High yield savings account such as Ally Online Savings Account an ideal place to save up for a down payment on a home. It offers above average APY, no monthly fees or minimum balance requirements, plus account holders can create up to 10 different “baskets” in a single savings account, which are dedicated funds for certain things, such as naming one “House of the Future”.
Annual Percentage Yield (APY)
No monthly maintenance fee
Maximum number of transactions
Up to 6 free withdrawals or transfers per discharge cycle * The restriction on withdrawal of 6 claims per cycle is lifted during the coronavirus outbreak in accordance with Rule D.
Excessive transaction fees
Suggest a checking account?
Suggest an ATM card?
Yes, if you have an Ally checking account
According to Latest State of the Automotive Finance Market from Experianthe average loan for a used car in the first quarter of 2021 was USD 35,392, while the average loan for a used car was USD 22,375. New car loans had an average maturity of 69.50 months with an average annual rate of 4.12%, while used car loans had an average maturity of 65.74 months and an average annual return of 8.70%.
Using NerdWallet’s car payment calculatorWe found that the average new car owner would only pay $ 4,450.96 in interest over a 69.50 month loan. The average used car buyer will pay $ 5,833.38 in interest on their average loan. Although the buyer of a used car borrows less money for a shorter period of time, his interest rate is more than double that of a buyer of a new car.
The average state university student occupies USD 30,030 to get a bachelor’s degree. Since the average interest rates vary greatly depending on the type of your student loan, we used federal loan data as these loans amount to about 92% all student loans.
For the purposes of our calculations, we used this year’s fixed federal interest rate for direct subsidized and unsubsidized loans for undergraduate students, which was 3.73%…
At this speed using Bankrate Student Loan CalculatorWe found that the average student loan borrower with a standard 10-year repayment plan would pay $ 5,994.07 in interest alone over 10 years.
How Refinancing Can Help Private Student Loan Borrowers
Borrowers of private student loans should remember that interest rates on private loans are usually higher than on federal loans. You may end up paying more in the total interest. For this reason, consider refinancing your private student loans at a lower interest rate.
Refinancing a student loan offers low fixed and variable interest rates, flexible loan terms from 5 to 20 years, no loan origination fees, no late or repayment penalties, and a 9-month grace period if you have trouble repaying your refinanced loan. Earnest especially stands out for allowing applicants with a fair credit rating (minimum 650 points) to qualify, which most refinancing lenders do not offer.
No refinancing fees
Federal, private loans, loans for graduates and undergraduate students
Variable rates (APR)
From 1.99% (prices include a discount for auto payment 0.25%)
Fixed rates (APR)
Starting at 2.98% (rates include 0.25%).% discount for auto payment)
Flexible terms from 5 to 20 years
$ 5,000 to $ 500,000 minimum (California residents must request refinancing of $ 10,000 or more)
Minimum credit rating
The average credit card balance is $ 5,315, according to data Experian’s latest consumer debt survey… While the average annual interest rate on a credit card is 16.30% as of May 2021, according to data Latest data from the Federal Reserve, for the purposes of our calculation, we used a fixed rate of 16% per annum.
Assuming the average credit card holder makes a minimum payment, which is calculated as 2% of their balance using Credit card calculator we found it took 376 months, or just over 31 years, to get rid of credit card debt. At a time when they only made the minimum payment, they would only have paid $ 9,624.24 in interest.
Sure, pay more than the minimum is an easy way to speed up the payment of credit card debt and significantly reduce the total amount of accrued interest. We always recommend that cardholders pay their credit card bill in full and on time each month.
Get help paying off your credit card balance forever
While borrowing money to fund a college or first home is usually seen as a financially sound move, carrying a balance on a credit card is a big ban because they high double-digit interest rates…
Balance transfer cards allow you to transfer your existing credit card debt to a new card with an initial 0% annual interest rate period so you can pay off your outstanding credit card debt on time without worrying about accumulating additional costly interest.
For example, US bank Visa® Platinum Card offers an initial interest rate of 0% on the first 20 billing cycles for both balance transfers and new purchases (after, 14.49% to 24.49% variable per annum). This is a long period of time during which you can pay off your credit card debt without increasing it month after month (provided that you do not incur any additional charges on the card). An initial annual interest rate of 0% applies to balance transfers made within 60 days of invoice date.
On a secure site US Bank
0% for the first 20 payment cycles for balance transfers and purchases
Regular annual interest rate
Balance transfer fee
Either 3% of the amount of each transfer, or a minimum of $ 5, whichever is greater
Foreign transaction fee
Editorial note: The opinions, analyzes, reviews or recommendations expressed in this article are solely owned by the Select editors and have not been reviewed, endorsed or otherwise endorsed by any third party.