Credit and Borrowing — How the cost of borrowing is calculated, and why it adds up.
Interest is the price of borrowing. Understanding how it is calculated is the difference between a loan that helps you and one that quietly drains you.
APR: Annual percentage rate: the yearly cost of a loan including interest and certain fees, which makes loans easier to compare.
Simple interest is charged only on the principal. Compound interest is charged on the principal plus unpaid interest, so debt can snowball if you do not keep up.
On a credit card, paying the full statement balance by the due date uses the grace period and avoids interest entirely.
A longer loan term lowers the monthly payment but means more total interest. A low payment is not the same as a cheap loan.
11 practice questions with explanations. Free, and no account is needed to start.