Loans and debt, explained

A loan is money you borrow and pay back over time, plus interest. Three numbers decide what it really costs:

• The amount you borrow.
• The interest rate, usually shown as an APR (annual percentage rate), which includes interest and some fees.
• The loan term: how long you have to pay it back.

Sellers often focus on the monthly payment, because a longer term makes it look smaller. But a longer term means you pay interest for more months, so the total cost goes up. A $25,000 car loan at 9% costs about $520 a month over five years, or about $400 over seven. That lower payment costs about $2,600 more in interest overall.

A down payment, money you pay upfront, means you borrow less and pay less interest. Your credit score matters too: a better score usually gets a lower rate.

Common loans you'll run into:

• Car loans, from banks, credit unions or the dealer. Compare offers before you shop.
• Student loans for college. Federal student loans have fixed rates and protections that private loans often don't.
• Mortgages, long loans to buy a home, usually 15 or 30 years. A small difference in the rate can change the total by tens of thousands of dollars.

Debt isn't automatically bad. Borrowing for something that helps you earn more, like training or a reliable car to get to work, can make sense. The questions to ask: what's the total cost, can I afford the payment if something goes wrong, and is this worth it?