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Introduction
In order to have a full grasp of the cost of borrowing money, it is imperative to have a solid working knowledge of interest and the role it plays in determining how much you end up paying back to the lender. The reason for this is that each month’s interest is capitalized (added) into the total balance due (the amount of money owed to the creditor). There are a few different ways of calculating interest and lenders may use slightly different methods to determine the amount you owe them, depending on a number of circumstances. For now, we’re just going to focus on one of the most common methods.