How Much More Does it Cost to Live With Bad Credit?


Having a bad credit score can make lots of things, like getting a credit card or buying a car, much more expensive.

How expensive? Well, we spoke to the experts to find out just what bad credit can end up costing you.

Bad credit means higher interest rates.

One of the most obvious and most striking ways bad credit can make your life more expensive is when it comes to interest rates for loans. The worse your credit score, the more money you’ll be paying in interest.

“For many consumers, a small missed payment or bad credit decision, can set them back financially for years,” warned Sahil Gupta, founder and CEO of Patch Homes (@patchhomes). “The reason is that credit score is key to accessing capital at lower rates. A bad credit score means the cost of accessing money goes up. Rather than getting a loan at say 5 percent, a consumer with bad credit may get a loan (if at all) at 8 percent or 10 percent.

“Take for example, a $100,000 loan for 5 years. At a 5 percent rate (good credit), the monthly payments are $1,887 for a total interest of $13,228. At an 8 percent rate (bad credit), the monthly payments are $2,028 for a total interest of $21,658. As you can see, a small difference in rate means a 7 percent higher monthly payment and a total interest paid higher by 60percent. That’s very expensive overall. This type of issue can occur across personal loans, credit cards etc. In the case of large ticket items like homes, a bad rate can mean more than a hundred thousand in additional payments. Additionally, it’s extremely difficult to get one’s credit score back-up. It’s a case of ‘stairs up, elevator down.’ Hence, poor credit can really hurt people for a long time.”

But as Gupta mentioned, this is all if you can get a loan in the first place.

You’ll have fewer options to borrow money.

Higher interest rates on bank loans are one thing. But if your credit is low enough or non-existent enough, you may not be able to get a loan from a bank at all. This will cost you even more money, especially if you become the target of predatory lenders hocking sketchy bad credit loans and no credit check loans.

They might be payday loans, with their with short payment terms and sky-high annual percentage rates (APRs). (Watch out: These loans are sometimes advertised as ‘cash advances.’) You should also avoid title loans, which have similarly high APRs and require your car as collateral.

If you want a good example of how having bad credit can make your life more expensive, just add whatever the cost of getting a new car would be to the running total. And speaking of getting a car…

Buying a car will get way more expensive.

Need a new car because a title lender seized your old car or because you just need or want one anyway? Well, bad credit is going to make that a lot more expensive.

“Bad credit is a huge disadvantage when buying a car, advised Roslyn Lash (@RosLash), an Accredited Financial Counselor and the founder of Youth Smart Financial Education Services. “You’re forced to purchase at ‘buy here, pay here’ dealerships. You’ll overpay for the car, the interest rate will be higher, and when you’re ready to trade, your new payment will include the balance of the old car. It’s a vicious cycle of bad credit and even worst debt!”

So what can you do?

Raising your credit score is a top priority.

If you want to spend less money overall, you’re going to have to get your credit back up to a good place. This means paying all of your bills on time. It means paying down your existing debt as much as you can. It might mean getting a secured credit card and only spending around 30 percent of your credit limit—plus making sure you pay your card off in full every month before it starts accumulating interest.

If you do need a personal loan and you have bad credit, try looking for an installment loan that only performs a soft credit check, meaning a credit check that does not negatively impact your credit score even further. If they report your payments to the three major credit bureaus so you can fix your credit, that’s even better.

Fixing your credit isn’t easy. But the savings you’ll get from doing it can make your life a whole lot easier.

To learn more about living with bad credit, check out these related posts and articles from OppLoans:

Do you have bad credit? How do you handle the increased cost of living? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

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Sahil_GuptaSahil Gupta is the co-founder of Patch Homes (@patchhomes), a financial institution that’s focused on unlocking home-equity wealth for homeowners without any interest or monthly payments. He’s passionate about developing new and innovative ways to redefine old school products and disrupt industries.
eblack-HS croppedRoslyn Lash (@RosLash) is an Accredited Financial Counselor and the founder of Youth Smart Financial Education Services.  She specializes in youth financial education, adult coaching and works virtually with adults helping them navigate through their personal finances i.e. budgeting, debt, and credit repair.  Her advice has been featured in national publications such as USA Today, TIME, Huffington Post, NASDAQ, Los Angeles Times, and a host of other media outlets.

The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.