Saw a meme with a guy paying back a $32,720 loan with a 30% interest rate and people in the comments said he’s gonna nearly 100 grand, or an extra 37k. How does interest actually work cause I’d assume the 30% meant 30% of the 32 grand?
In: Economics
Depends on the type of loan. If it’s a student loan then it accrues interest daily. Every monthly payment pays down what has accrued since your last payment (assuming you are consistently on time, otherwise it all goes to interest on there plus whatever has accrued since then) plus a little towards the principle amount. Int calculated like… say student loan is 10,000 with a 8.2 interest. 10,000 x 8.2% / 365 is 224.64 move the point over two and it’s 2.25 rounded up. So the example would accrue approximately $2.25 a day. So in a 30 day period it would be about $67.50 a day. So you would be paying that much interest monthly… on top of what you are paying towards the principle to even lower the balance. So the end result is you end up paying a lot more than you take out. But again. Not all loans function this way.
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