How do we figure it out? Easy! Let's say you're buying a car.
Don't be afraid to dream big!!
This car is going to cost $75,000. Hey, I said, "DREAM BIG!!" :)
The rate at which the interest will accrue is 4%.
You will take 5 years to pay off the loan.
We want to find out how much actual interest you will pay on your loan.
First, we must find 4% of $75,000. We know that "of" means "multiply."
.04 x $75,000 = $3,000. This is the interest for 1 year, but we will be paying for 5 years, so we must multiply again by 5.
$3,000 x 5 = $15,000 This is how much total interest we will pay on the loan. That means that we will pay back the $75,000 we borrowed, plus we will pay an extra $15,000 fee (interest).
We can reduce the amount of interest we pay by borrowing a smaller amount, by getting a lower interest rate, or by paying the loan off in less time.
