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.
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