Interest is money charged over time
When you borrow money, interest is the extra amount you pay for using someone else’s money. When you save or invest money, interest or growth is the extra amount your money may earn over time. The basic idea is simple: a rate is applied to a balance for a period of time.
Why the interest rate matters
A higher interest rate usually means a loan costs more, especially if the balance is large or the repayment period is long. A lower rate usually means less total interest, but the term and fees still matter. That is why two loans with similar monthly payments can have very different total costs.
Why time matters
Time can work for or against you. On a loan, more time often lowers the monthly payment but increases the total interest paid. With savings, more time can help your money grow because earnings may build on earlier earnings.
Simple interest versus compound interest
Simple interest is calculated only on the original amount. Compound interest is calculated on the original amount plus past interest or growth. Compounding is why starting early can be powerful for savings, but it is also why unpaid credit card balances can become expensive.
What to compare before borrowing
Look at the monthly payment, interest rate, term length, fees, and total repayment amount. The lowest payment is not always the best deal if it stretches the loan for many years.