You may or may not know that when you make a payment towards a loan that not all of that money is paying off the loan.  This is something that is critical to understand.

If you think every payment you make goes towards paying off the loan then you will be very surprised when the loan length ends up two or even three times longer then you had anticipated.

The loan payment you make is actually only partially going towards repaying the actual loan amount.  In fact, most of the time the majority of the loan payment is actually paying interest to the lender. This is why it’s important to shop around for the best rate possible and this is why getting a low interest rate is so important.  The less interest you pay the more is going towards the actual loan and the sooner you will have it paid off.

How do you get the best interest rate?

Shop around! If you have great credit, you’ll have your pick of many lenders. If you are credit report challenges, your interest rate might be higher but a loan can actually help you improve your credit rating very quickly when you make payments on time.

Understanding the breakdown of a loan payment is important and knowledge will save you money!