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Interest You Pay

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 Interest You Pay By Patti Hutchison

1     Do you have a car loan or a mortgage? Do you use credit cards? If so, you pay interest. What is interest, and how does it work?

2     Whenever a bank or business loans you money, they charge interest. Interest is extra money you pay back on the money you borrowed. Interest is figured on a percentage basis.

3     For example, let's say you borrow \$10,000 to buy a car. You get a great interest rate of seven percent A.P.R. (A.P.R. means annual percentage rate.) You are going to pay back the loan over five years.

4     The bank calculates your interest. They multiply the \$10,000 by seven percent. It comes out to \$700. This is the amount of interest you pay for one year. Then the bank multiplies that by five years. The total interest you will pay on your car loan is \$3500. This means that if you pay all 60 payments, you will actually pay \$13,500 for your car that only cost \$10,000.

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