![]() With a higher interest rate, you may wind up paying more in interest payments over the life of the loan.Īn example: You borrow $15,000 for a vehicle loan at 5 percent fixed interest for 48 months. Before you agree to a loan, it’s important to make sure you completely understand how the interest rate will affect the total amount you owe. When interest rates are high, it’s more expensive to borrow money when interest rates are low, it’s less expensive to borrow money. When the index changes, the interest rate may change as well. A fixed interest rate does not change a variable interest rate is tied to a benchmark interest rate called an index. The total amount you pay back in interest can vary, depending on the length of your loan and whether interest rates are fixed or subject to change (known as variable interest rates). If potential lenders and creditors see a past record of responsible credit behavior and consider you a low-risk borrower, you may receive more favorable interest rates. There are some exceptions: if you pay your credit card balance in full every month, or you have a promotional 0 percent interest rate, for instance, you will not pay interest. When you borrow money, you generally must pay back the original amount you borrowed, plus a certain percentage of the loan amount as interest. ![]() To put it simply, interest is the price you pay to borrow money – whether that’s a student loan, a mortgage or a credit card. Interest rates will inevitably be a large part of your financial life, but they can be a little confusing. Let’s start with the basics when it comes to interest rates. ![]() A lower interest rate will cost you less over the life of a loan.Credit scores and other factors can play a significant role in credit approval and interest rates.Even a small percentage difference can impact the amount of interest you pay on a loan.
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