How can people make payments for 20 years on school loans and barely make a dent in the principal? How are those loans different than a mortgage?
In: Economics
Interest accumulates. If it outpaces your payments towards the principal then the loan balance increases.
People get into this problem with all kinds of loans. Even with credit cards. People think that the minimum payment is what they should pay. That’s just a made up number. There’s no promise that the minimum payment ends up killing your loan even over long periods of time. Usually only a small % of the minimum payment goes towards the principal. Most goes towards interest.
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