If I borrow 100k at 5% interest, and to be paid back in 5 years, why is it not that case that I just pay 21k per year and would have paid 105k after 5 years? I heard that if I pay back a little extra every year, it will help to go pay off the interest first, what does that mean? If I owe a set amount of money on fixed interest, how can the total amount change?
In: 4
Because 5% APR means that you’ll be paying 5% of the remaining principal per year. So in the first year, you owe 5k in interest, but near the end, you’ll owe much less in interest (so more goes towards the principal)
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