Mar
08

How Interest Affects Your Money

March 08, 2012

Interest rates affect your moneyWith all the excitement about the historically low mortgage rates, it is important to remember just what mortgage rates are: interest. Interest is a key factor in economics and is very important if you are beginning your home buying search. The Equifax Personal Finance Blog has a great post about it titled “Are You Paying Interest Or Saving Money?

Interest is a fee paid to the lender for the privilege of borrowing money. Interest is a cost of doing business, particularly if you need to make large loans. For instance, you pay interest on loans such as credit card balances and mortgages.

It’s easy to add up all the interest you pay on credit cards, mortgages, auto loans and student loans and think about how you could be spending it. However, you have to realize that for lenders the amount you pay in interest combined with your credit score is what allowed you to obtain the loan to make the original purchase.

It is very important to consider the interest costs of loans to see if immediate access to the capital provided by the loan is really worth the cost in the long term. Some great tools for helping determine if loans are worth it are amortization tables and loan calculators, widely available online.

The cost in interest is also a reason to make additional payments toward principle on a loan. Try to focus on payment plans so you avoid paying more interest. Make sure you avoid loans that have pre-payment penalties, as some institutions include these to prohibit you from paying off debt quickly.

The full article has more about interest, and you can check the Equifax Personal Finance Blog for expert advice about credit, taxes, retirement, real estate and everything money-related.

About The Author

Read All Stories By Ben Heisler

Ben Heisler works as an account coordinator for clients involved in the housing market, construction material, rentals, personal finance and more. Visit my Google+ profile.

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