You may have borrowed money from a friend for an after school snack or from your parents to see a baseball game, but in the future you might need to borrow more than a few bucks. The cost of going to college or buying a car is usually more than you have saved in your bank account. Luckily, investing in your future or purchasing an expensive item is still possible with a loan. When you borrow money from a bank, it’s not free money — you have to pay it back, plus interest. This means you have to pay back all the money you borrowed plus a little extra for the service.
Ever see car commercials talking about financing deals and special sales? In a few years, you might be driving! You may not be able to buy a car today, but for this exercise, let’s look at how a car loan works. A typical length of a car loan is five years at about 4% interest rate. What does that look like in real life? Use the calculator below to find out.
The amount of debt you’re in may impact how easily you can qualify for future loans. There is a written record, or credit history, that tracks how you've repaid previous loans, any outstanding debt and other financial history. Generally, the lower your credit score, the higher the interest you will have to pay on future loans because there’s a higher risk you might not pay it back on time.