Whether you are borrowing or investing, interest and how it is calculated is an important concept to understand. Interest is a fee paid by a money borrower to a money lender for however long the borrower needs the money. It is usually a percentage of the loan still owing, or the principle. Interest works for you when you are lending or investing money. But it costs you if you are borrowing the money.
For example a person who borrows money, say on a credit card, would pay an annual interest rate of 5-19% on the amount of money they owe on their card. The money that they borrowed costs them an annual fee. But if you lend someone money and charge them interest, you would get your original investment back over time and you would make some extra money from the borrower for the interest that was paid.
Understanding how interest works is key to building wealth as well as creating a healthy attitude towards debt.
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