Say there’s a loan for $10,000. The interest rate is 11%. Monthly payment is $300.
How can you keep interest at bay, and not pay thousands in interest by the end of it all?
Is there a formula to figure out how much *extra* to pay per month, in order to… cancel out? the interest?
Is this even possible? Is this even how interest works?
Honestly, I don’t get the concept at all. Explain it to me like I’m five.
In: Economics
As long as the loan still exists, it is always accruing interest. Each month you are paying off all the interest that you currently owe, plus some of the remaining balance of the loan. By the time your next payment is due, additional interest has accumulated based on the remaining balance of the loan. The more you pay each month, the less loan is left, so the less interest builds up during the next month. But as long as the loan exists, it’ll always accrue interest. That’s the fee the bank charges you for still having their money. The faster you pay the loan down, the less interest builds up since it’s a percentage of the remaining balance.
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