Interest cost shows how much you will pay in interest over the life of the loan, assuming you keep the loan for the entire period.
In spite of the fact that lenders loan people money, their primary concern is making money. After all, lending institutions are businesses and they need inflow of funds in order to make their operations work. One of the ways that lenders make money is by charging interest on loans made to borrowers. The profits generated from the interest keeps the business in good standing and keeps the amount of money available for lending replenished.
A borrower pays more than the purchase or loan amount due to the interest cost. This is the cost of borrowing money. The term interest cost is the total amount that you will pay in interest on a loan if you keep the loan for its entire term. Of course, you can choose to make more than the minimum balance which can help you pay off your loan faster and keep you from paying the entire interest cost. If you do decide to accelerate your payment to pay off your loan faster, be sure to check over the paperwork of the loan. Some loans carry a prepayment penalty which means that if you repay your loan within the first few years, you will be charged extra to help the lender recover from the loss of the interest cost.
July 8, 2006
