If you ever pay attention to the news you’ve probably heard of interest rates going both up and down at times. But what is interest anyway?
Since we at A Step Above Style value your time (and because you already know why you’re here) we’ll jump right in.
Let’s begin.
What is Interest?
“Interest is the amount a lender charges a borrower and is a percentage of the total amount loaned”.
Definition of Interest
Example of Interest On A Car Loan
- You borrow $15,000 for a vehicle
- The interest is a 5% fixed rate
- The term (length) of the loan is 48 months or 4 years
- Total amount paid in interest over the course of the loan is $1,581
Why Does Interest Exist?
While interest may seem unfair at first glance, put yourself in the shoes of the person or entity loaning money to others.
If it wasn’t for interest, lenders wouldn’t profit anything when loaning their money to a borrower.
So just like with any other transaction, the goal of the seller is to make a profit.
Pro Tip : This is how credit card companies make money! If you don’t pay on time, you’ll get charged interest.
The company has now made money off you for not paying the borrowed amount back on time.
Avoid interest by paying off your credit card balances in full each month !
Conclusion
We at A Step Above Style hope you found this blog post entertaining, educational, and empowering.
Being financially literate is a important part of life for those who don’t want to be average.
And remember,
“Applied knowledge is power”.
ASAS Words of Wisdom
Until next time, y’all have a good one.
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