Think of interest rates like a rental fee for borrowing money. When you take out a personal loan, you agree to pay back the amount you borrowed (the principal) plus an extra percentage (the interest). This interest is how lenders make money.
Interest rates are usually shown as an Annual Percentage Rate (APR). This tells you the total cost of borrowing over a year, including any fees.
- Lower interest rate = lower overall cost. So, it's important to shop around and compare rates from different lenders.
- Fixed vs. variable interest rates: Some loans have fixed rates, which stay the same throughout the loan term. Others have variable rates, which can go up or down over time.
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