Interest is the cost charged for borrowing under the agreement. The rate, calculation method and balance on which it is charged determine how that cost develops over time.

A longer term may lower individual payments while increasing the total interest paid. Compare the whole repayment schedule and fees rather than assuming a smaller instalment is cheaper overall.

Where unpaid interest is added to the balance, future interest may also be charged on that amount. Ask how interest accrues and how early repayments affect the balance.

Key takeaways

  • Interest is the cost charged for borrowing under the agreement.
  • A longer term may lower individual payments while increasing the total interest paid.
  • Where unpaid interest is added to the balance, future interest may also be charged on that amount.