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Saving big on your loan

Even when you buy wisely, it's easy to fall into debt. How can you make sure that you are paying as little interest as possible?

The higher the interest rate, the more the loan will cost.

The total cost of an item bought on credit depends on 3 things: the amount you borrow, the interest rate and the repayment term. That's why it's in your best interest to save up as much as you can toward it ahead of time: you reduce the amount you have to borrow and the length of time you make payments.

Of course, the best way to ensure peace of mind is to pay cash.

The longer the repayment term, the more the loan will cost.

You might be tempted to spread your payments out over a longer period to reduce your payments, but it will cost you more in the long run. That's why it's in your best interest to borrow the smallest amount possible for the least amount of time possible.

Note that the frequency of payments (e.g., weekly, semi-monthly, monthly) can also affect the total cost of the loan.

Loan amount

Interest rate Repayment term Extra amount paid in interest
$2,000 10% Over 2 years $215 for a total of $2,215
$2,000 10% Over 4 years $435 for a total of $2,435

Did you know?

To find out a credit card's daily interest rate, divide the annual interest rate by the number of days in the year. If your credit card's annual interest rate is 28%, for example, its daily interest rate is 0.0767%. This means that you pay $0.77 a day on an outstanding balance of $1,000.

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