interest ratePaying interest is the cost of borrowing money. There is always a cost, although that cost can vary. Every lender has an interest rate, and there is a market and industry standard interest rate, but there is a lot of wiggle room in there for a savvy borrower.

Avoid the Variable Interest Rate

If the APR on your loan is variable, then keep on looking. Here is a secret it – a variable rate can theoretically go up or down, but it really only ever goes up.

Variable interest is a way to entice borrowers with low initial rates, and then slowly raise them.

Find a fixed rate… but even that isn’t enough.

What are the Penalties?

The APR itself is only part of what you pay. Many lenders include regular fees and penalties that increase the cost of the loan.

Most people have come to expect late fees for a delinquent payment. Just as common are prepayment penalties, which charge you every time you make an extra payment, or attempt to pay your loan off early.

While you want a fixed rate, you don’t want a fixed length of time for your debt. The goal is always to pay it off as quickly as possible.

With a Loan, Time = Money

The interest rate is the amount you pay to borrow money over time. The longer the loan exists, the more you have to keep paying for it. Paying a loan off faster makes it cheaper (as long as you don’t have those pesky prepayment penalties)

The only way to beat the interest rate is to avoid it!

But when you do need to borrow money, make sure to 1) find a fixed rate loan 2) make sure it has no stiff penalties and 3) repay that loan as soon as possible!

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