Credit & Debt

Interest

Interest is the cost of borrowing money. The rate, balance and time outstanding all affect how much interest you pay.

4 min

Credit 101 • 02

Interest is the price of borrowing.

It is money paid to the lender in addition to repaying the amount you borrowed.

Three things usually matter most.

The interest rate, the balance and how long the debt remains outstanding all affect borrowing cost.

Interest becomes more expensive when

01The rate is higher02The balance is larger03The debt stays around longer04Interest is added frequently05Payments are small relative to the balance

Principal and interest do different jobs.

01

Principal

The amount of debt being repaid.

02

Interest

The cost charged for borrowing.

A rate turns a balance into a cost.

Balance$10,000
Example annual rate8%
Rough one-year interest$800
Actual resultDepends on timing and payments

An annual rate does not mean you pay the full annual amount every month.

Interest calculations depend on the product and how long balances remain outstanding.

When comparing borrowing, check

01Annual interest rate02Whether the rate is fixed or variable03Fees04Payment schedule05Total cost over the term

Remember this

Interest makes time matter.

The longer expensive debt stays outstanding, the more room interest has to add to the cost.

Lesson complete

Reviewed 2026-08-18

Sources

Financial Consumer Agency of CanadaWhat to consider before borrowing money ↗Financial Consumer Agency of CanadaPersonal loans ↗
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