When we are in school, we spend a lot of time learning our reading, writing, and arithmetic, but we don’t learn a lot about personal finance. So, when we grow up and start to use credit cards or get a mortgage, we find that there are huge holes in our knowledge, holes that can cost us a lot of money. You may think that you know what you are paying for the money you are borrowing, but unless you have tried out your numbers on a personal loan calculator, you really don’t know.

A basic loan like a personal loan, or even a mortgage, has an interest rate attached to it. But, that interest rate is not “flat” interest, it continues to compound. So, although your annual percentage rate may be 5 percent, that does not mean that you will only pay 5 percent over the life of the loan. In fact, you may be surprised to find out that with compounding interest, you end up paying your loan off several times over, resulting in an overall interest rate of several hundred percent.

Especially with long-term loans, the longer you pay them back, the more interest you will pay and a personal loan calculator will help you to figure out how much of what you are paying is principal and how much is interest.

With most mortgages, you have the opportunity to pay down the principal after you have made your monthly payment, and by doing that even a little every month, the resulting savings will be huge over the life of the loan. You can calculate the savings on a personal loan calculator found online and you will realize that by adding just a few dollars to your mortgage (or credit card) payment every month, you could end up savings thousands of dollars.

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