Borrowing money allows you to buy something now and pay for it later. There are different ways to borrow money:
Borrowing money costs you more because of interest. Interest is the price you pay for using someone else’s money. For example – you want to borrow $100 from the bank or credit union in order to buy a new laptop now. The bank or credit union will lend you the money if you agree to pay $20 in interest. You agree to pay $20 in interest, the bank or credit union lends you money and you buy the laptop. When it’s time to repay the loan, you owe the bank or credit union $100 plus $20 interest. You repay the bank or credit union more money than you borrowed in the first place.
Borrowing money comes at a cost. This extra cost is called interest. If borrowing money costs more, why do people still do it? Here are three reasons why:
People often borrow money to help pay for these items — what do these items have in common? You can save up for these items yourself, but it would probably take a very long time. By borrowing money, you can start using what you buy (while you’re still paying for it).
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