Here's How Much a Single Percentage Point Can Change the Cost of Your Loan
Updated
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We humans do strange things. We hit the elevator button several times, believing it will speed up the process. We check for bad guys hiding in the closet and behind the shower curtain as soon as we enter a hotel room. And we worry more about the monthly payment than the total amount a loan will cost.
That last one is straight-up silly. Paying more than necessary for a personal loan is like throwing money into a fire and watching it burn. Whether you're shopping for a personal loan, credit card, mortgage, or any other type of consumer loan, it is up to you to save yourself money.
Take a look at these comparisons of different interest rates on a 60-month and 72-month personal loan for $36,000. If you take out a personal loan for 6% over a 60-month period, you'll pay a total of $41,759 -- with $5,759 in interest charges over the course of the loan.
But if you agree to a personal loan at 7% instead, you'd pay an additional $1,012 in interest. And, if you extend that same loan for an extra year at the higher rate, you might lower your monthly payments, but you'd pay a total of $44,191. That's almost $2,500 more than the total cost of the five-year loan at 6%.
Charts like these might help you walk away from bad deals. Each shows how much more a single percentage point will cost you over the life of a loan.
| Interest Rate | Monthly Payment | Total Interest Paid | Total Paid |
|---|---|---|---|
| 4% | $663 | $3,780 | $39,780 |
| 5% | $679 | $4,762 | $40,762 |
| 6% | $696 | $5,759 | $41,759 |
| 7% | $713 | $6,771 | $42,771 |
| 8% | $730 | $7,797 | $43,797 |
| 9% | $747 | $8,838 | $44,838 |
| 10% | $765 | $9,894 | $45,894 |
| Interest Rate | Monthly Payment | Total Interest Paid | Total Paid |
|---|---|---|---|
| 4% | $563 | $4,552 | $40,552 |
| 5% | $580 | $5,744 | $41,744 |
| 6% | $597 | $6,957 | $42,957 |
| 7% | $614 | $8,191 | $44,191 |
| 8% | $631 | $9,446 | $45,446 |
| 9% | $649 | $10,722 | $46,722 |
| 10% | $667 | $12,019 | $48,019 |
No matter what you're shopping for -- whether it's a mortgage, an unsecured personal loan, or a new credit card -- interest rates matter. Agreeing to pay a single percentage point more in interest is like allowing the bank to siphon extra money from your account each month.
One surefire way to avoid bad deals: Understand the loan repayment terms. And keep an eye on the total cost, rather than the monthly payment.
To score the lowest possible interest rates, start by boosting your credit score. This can be the difference between snagging a loan when you need it or hoping you can find enough in your checking account to cover an emergency situation. There are lots of ways to improve your score. Ultimately, the best strategies are simply paying your bills on time and minimizing the amount of debt you carry.
Make sure you're getting the best account for you by comparing savings rates and promotions. Here are some of our favorite high-yield savings accounts to consider.
| Account | APY | Promotion | Next Steps |
|---|---|---|---|
Open Account for SoFi Checking and Savings
On SoFi's Secure Website.
Rating image, 4.50 out of 5 stars.
4.50/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
up to 3.80%²
Rate info
You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.
Min. to earn: $0
|
New customers can earn up to a $300 bonus with qualifying direct deposits!¹
|
Open Account for SoFi Checking and Savings
On SoFi's Secure Website. |
Open Account for CIT Platinum Savings
On CIT's Secure Website.
Rating image, 4.50 out of 5 stars.
4.50/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
4.10% APY for balances of $5,000 or more
Rate info
4.10% APY for balances of $5,000 or more; otherwise, 0.25% APY
Min. to earn: $100 to open account, $5,000+ for max APY
|
Earn a bonus of at least $225 after a one-time deposit of $25,000+.
Transfer a one-time deposit of $25,000-$49,999.99 for a bonus of $225. Transfer a one-time deposit of $50,000+ for a bonus of $300. Account must be opened with code PS2025 while this promotion lasts, and funded within 30 days. Bonus will be fulfilled within 60 days from the funding date. There is no period of time where the customer will be required to maintain the funds. Account must be open when bonus is credited. One bonus per account and primary customer. Bonus will be credited into the Platinum Savings Account that fulfills the funding requirement. Funding can be deposited all at once or incrementally.
|
Open Account for CIT Platinum Savings
On CIT's Secure Website. |
Open Account for American Express® High Yield Savings
On American Express's Secure Website.
Rating image, 4.00 out of 5 stars.
4.00/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
3.70%
Rate info
3.70% annual percentage yield as of April 4, 2025. Terms apply.
Min. to earn: $0
|
N/A
|
Open Account for American Express® High Yield Savings
On American Express's Secure Website. |
SoFi disclosure:
¹ New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/26. See full bonus and annual percentage yield (APY) terms at sofi.com/banking#1.
² SoFi members who enroll in SoFi Plus with Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi Plus members are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. See the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
³ We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
⁴ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations.
Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at SoFi.com/banking/fdic/sidpterms. See list of participating banks at SoFi.com/banking/fdic/participatingbanks.
⁵ We’ve partnered with Allpoint to provide you with ATM access at any of the 55,000+ ATMs within the Allpoint network. You will not be charged a fee when using an in-network ATM, however, third-party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
⁶ Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.
⁷ Overdraft Coverage is limited to $50 on debit card purchases only and is an account benefit available to customers with direct deposits of $1,000 or more during the current 30-day Evaluation Period as determined by SoFi Bank, N.A. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the“30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Members with a prior history of non-repayment of negative balances are ineligible for Overdraft Coverage.
For the purpose of illustration, let's say you've been dreaming of a kitchen remodel. You fall in love with a display set up at your local home improvement store. The salesperson mentions the price -- and you swallow back your surprise. It's thousands more than your cool-headed research predicted.
The salesperson insists that the number you've run across online is the manufacturer's suggested retail price. Apparently, demand for this particular design is so high that people are willing to pay more. The salesperson makes a few suggestions for how you can pay for your dream kitchen, from paying out of pocket from your checking account and taking out a store credit card to pay the rest to applying for an unsecured personal loan.
You wisely turn to leave, but the salesperson stops you and asks what your ideal monthly payment would be. They mention a banker who might be willing to help you secure the perfect personal loan. The salesperson casually asks about your credit score, and you suddenly feel nervous. As much as you want a kitchen remodel, you wish you'd left the store as soon as you heard the price. Besides, you're not sure about taking out a personal loan and adding to the debt you already have.
But the price the salesperson is now quoting on the cabinets and countertops is lower than anything you've seen online. You can already imagine hosting Thanksgiving dinner in your new kitchen. At this point, you're emotionally committed. The salesman calls up the loan officer, and even though you know you're making an emotional decision, you agree to let the bank run a credit check. It comes back a little better than you expected. You're so relieved that you suddenly feel as though it might be okay. You can take on another monthly payment in exchange for your dream kitchen, right?
The lender emails a loan application for you to fill out right there in the store. The APR that you are quoted on the loan is about 1% higher than expected, but you don't worry. After all, how much damage can 1% do? The lender also suggests that you stretch the personal loan term out over 72 months instead of the 60 months you requested to "keep the monthly payment down."
By now, you want that new kitchen so much that you agree to a loan term without crunching the numbers. You sign on the dotted line without thinking about how much you will pay in total.
Don't be that consumer. Never forget that you have the power to walk away from a bad deal.
We're all human. We'll continue to self-diagnose based on the latest Google search results. We'll still touch a plate the second a server warns us it's hot. And we'll still make financial mistakes. What makes us smart humans is correcting those mistakes so that next time, we can get it right.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands. Terms may apply to offers listed on this page.
