Sixth Grade
Worksheets
Interest You Pay
Do you have a car loan or a mortgage? Do you use credit cards? If so, you pay interest. What is interest, and how does it work?
Whenever a bank or business loans you money, they charge interest. Interest is extra money you pay back on the money you borrowed. Interest is figured on a percentage basis.
For example, let's say you borrow $10,000 to buy a car. You get a great interest rate of seven percent A.P.R. (A.P.R. means annual percentage rate.) You are going to pay back the loan over five years.
The bank calculates your interest. They multiply the $10,000 by seven percent. It comes out to $700. This is the amount of interest you pay for one year. Then the bank multiplies that by five years. The total interest you will pay on your car loan is $3500. This means that if you pay all 60 payments, you will actually pay $13,500 for your car that only cost $10,000.
