When a person has a loan set up at a bank, they are receiving money in from the bank, in return for a guarantee from you that you are going to make future payment, plus extra, in order to cover their payment to you.
The “extra” is a percentage, and it’s called the interest rate.
The interest rate the a lendee is going to pay back over time is based on the principle amount, or original amount of the loan.
Every time you pay off principle, you decrease the amount you are going to pay back, when it’s multiplied by the interest rate.
That’s all for now. We’ll continue in the next article.