One thing for certain when it comes to getting financing is that credit is not free. Lenders charge money when they extend credit for loans, mortgages, credit cards and other financing. The cost of borrowing is called interest; the amount of interest charged depends on several factors. Over time, consumers will pay tons of cash in interest, which is why it is an important aspect to consider in making money management decisions.
Two basic parts of most types of credit account payments are principal and interest. Principal is the amount borrowed, which can mean the price of an item (like a car or house) or the amount of credit used (as in credit cards and credit lines). Interest is the cost the lender charges the borrower to extend credit, which is where some borrowers get confused or pay more than they bargained for.