Loan interest is the cost of borrowing money from a lender. It is usually expressed as a percentage of the amount borrowed and is added to the principal amount of the loan. The interest rate and the term of the loan determine how much interest you will pay over the life of the loan.
Here's how loan interest typically works:
- You borrow money: When you take out a loan, you borrow money from a lender. The lender will charge you interest on the amount you borrow.
- Interest rate is determined: The lender determines an interest rate based on your creditworthiness, the amount of the loan, and other factors. The interest rate is expressed as an annual percentage rate (APR).
- Interest is added to the principal: When you make your loan payments, a portion of the payment goes toward paying off the principal amount of the loan, and a portion goes toward paying the interest that has accrued.
- Interest accrues over time: Interest continues to accrue on the outstanding balance of the loan until it is paid off in full. This means that the longer it takes you to pay off the loan, the more interest you will pay.
- Total cost of the loan: The total cost of the loan includes the principal amount borrowed plus the interest that has accrued over the life of the loan.
It's important to shop around for loans and compare interest rates to ensure that you are getting the best deal. You should also make sure you understand the terms and conditions of the loan before signing any paperwork.
