General Question

eadinad's avatar

What does 6.8% interest actually mean?

Asked by eadinad (1265 points ) August 14th, 2008

Say I were to take out a student loan for, oh, $2000 dollars. The loan has 6.8% interest, which begins to accrue immediately, though I don’t have to make payments on it for three more years. In three years time, how much would the balance on my originally $2000 dollar loan actually be?

Is it just 6.8% interest a year? And is the interest on only the original amount, or the amount plus interest from previous years?

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5 Answers

Michael's avatar

If you didn’t pay a dime of the original $2000 for three years, then by the time you start paying it back, you’ll actually owe $2,436 (2000×1.068 to the third power). The interest applies to both the principal and any unpaid interest that has accrued over time. In fact, when you do start paying back your loan, make sure that your payments are large enough to actually begin paying down the principal itself. For example, if your loan owe $10,000 with a 7% interest rate. You need to be paying more than 58 dollars a month or else you will never pay the loan off at all (since the interest on $10,000 at 7% is 700 a year, if you only paid $50 a month, at the end of the year, you’d actually owe $10,200, a bigger debt than when you started).

All reputable loan companies will make sure that your payments are large enough to pay down the debt, but the private ones will want you to take as long as possible to do so.

gooch's avatar

$2000+($2000*0.068 /12) this is the new month balance which will replace the $2000 in the equation. After 3 years your balance will be
=$2,451.18
new bal. interest int & prin payment new bal.
$2,000.00 $11.33 $2,011.33 $0.00 $2,011.33
$2,011.33 $11.40 $2,022.73 $0.00 $2,022.73
$2,022.73 $11.46 $2,034.19 $0.00 $2,034.19
$2,034.19 $11.53 $2,045.72 $0.00 $2,045.72
$2,045.72 $11.59 $2,057.31 $0.00 $2,057.31
$2,057.31 $11.66 $2,068.97 $0.00 $2,068.97
$2,068.97 $11.72 $2,080.69 $0.00 $2,080.69
$2,080.69 $11.79 $2,092.49 $0.00 $2,092.49
$2,092.49 $11.86 $2,104.34 $0.00 $2,104.34
$2,104.34 $11.92 $2,116.27 $0.00 $2,116.27
$2,116.27 $11.99 $2,128.26 $0.00 $2,128.26
$2,128.26 $12.06 $2,140.32 $0.00 $2,140.32
$2,140.32 $12.13 $2,152.45 $0.00 $2,152.45
$2,152.45 $12.20 $2,164.65 $0.00 $2,164.65
$2,164.65 $12.27 $2,176.91 $0.00 $2,176.91
$2,176.91 $12.34 $2,189.25 $0.00 $2,189.25
$2,189.25 $12.41 $2,201.65 $0.00 $2,201.65
$2,201.65 $12.48 $2,214.13 $0.00 $2,214.13
$2,214.13 $12.55 $2,226.68 $0.00 $2,226.68
$2,226.68 $12.62 $2,239.29 $0.00 $2,239.29
$2,239.29 $12.69 $2,251.98 $0.00 $2,251.98
$2,251.98 $12.76 $2,264.74 $0.00 $2,264.74
$2,264.74 $12.83 $2,277.58 $0.00 $2,277.58
$2,277.58 $12.91 $2,290.48 $0.00 $2,290.48
$2,290.48 $12.98 $2,303.46 $0.00 $2,303.46
$2,303.46 $13.05 $2,316.52 $0.00 $2,316.52
$2,316.52 $13.13 $2,329.64 $0.00 $2,329.64
$2,329.64 $13.20 $2,342.84 $0.00 $2,342.84
$2,342.84 $13.28 $2,356.12 $0.00 $2,356.12
$2,356.12 $13.35 $2,369.47 $0.00 $2,369.47
$2,369.47 $13.43 $2,382.90 $0.00 $2,382.90
$2,382.90 $13.50 $2,396.40 $0.00 $2,396.40
$2,396.40 $13.58 $2,409.98 $0.00 $2,409.98
$2,409.98 $13.66 $2,423.64 $0.00 $2,423.64
$2,423.64 $13.73 $2,437.37 $0.00 $2,437.37

trumi's avatar

It means you will get robbed of alls your monies. Thanks, Economy!

meganbrown1's avatar

Sure does! Make sure you pay during those 3 years of no payments necessary. As MUCH as possible! Your better off looking in to a loan that offers NO Interest for 3 years rather than no payment. Then try paying it off completly before interest starts accumulating. As well if you do find this type of loan make sure that its not No interest if paid by 3 years because if you dont pay it all back the whole 3 years of interest just gets tacked on anyway.. GL

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