The Cost of Money

Posted By: Dr. Frugal in Loans on 08/29/2007 at 07:00:27

Money costs money. When you borrow money, you pay the lender interest at a rate that involves several parts:

. How long you intend to borrow it

. How (or if) the loan is secured

. How much of a risk you are to default on the loan

Based on these factors, the lender will set an interest rate for the loan. No matter what the circumstances, you pay interest in one form or another on any money you borrow, no matter how good your credit is.

Even when you see those advertisements for 0% APR on new furniture or cars, you can believe that built into the price of the product is interest on the money you are borrowing by paying for the product over time. If not, the deal is reserved only for people with perfect credit and is used in such a way as to attract people of ALL credit. Most people will not qualify for the special financing and have to settle for a higher interest rate on the car or couch they have decided to love.

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