Everyone should have an interest in learning more about interest.
That statement may sound a little silly, or redundant, but it is very true. Interest is an aspect of finance that has become a major factor in how we live our lives. Interest is basically a way for someone to earn money from loaning money. It sounds confusing, but if you loan one penny to a friend, you no longer have the ability to use that penny for your own needs, and you have added a level of risk that you may not get that penny back. To help offset the risk of never getting that penny back, and to help with the loss of you ability to use that penny if an opportunity comes up, you may want to charge a small fee. This fee that a lender charges is called interest.
Interest is a fee that is set as a percentage rate per dollar borrowed. This percentage can go up, or down, depending on a lot of factors. Factors that can affect the rate are typically adjusted by the amount of risk that the loan may not be paid back, the amount of the loan, and the overall opinion on where else that money could be better used in a market.
My father always told me that there are two sides to interest. There is a good side, and a bad side. Of course, the bad side is when you pay interest to someone to borrow money from them. Whether it be a car, house, credit card, or general loan, they have leverage over you to earn money from what you have borrowed. The good side of the interest is to be the person loaning money and earning interest. As someone who is loaning money, interest is a way to earn a profit and to reduce your risk of loaning the money out.
There has been much speculation in the recent years of predatory lending. That is, groups that loan money at extremely high interest rates to people that need money and may not understand what they are agreeing to. Educate yourself on interest, compound interest, and how it is calculated.
For more on interest and how it is applied in borrowing, or how interest can be earned, try using some of these online calculators.
Vehicle Loan Monthly Payment Calculator
Mortgage Loan Monthly Payment Calculator
Financial and Business Calculators
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