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When you take out a loan, what happens to the total amount you pay back over the lifetime of the loan?

Question

When you take out a loan, what happens to the total amount you pay back over the lifetime of the loan?

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Solution

When you take out a loan, the total amount you pay back over the lifetime of the loan typically increases. This is due to the interest and fees that are added to the original loan amount, also known as the principal. Here's a step-by-step breakdown:

  1. You borrow a certain amount of money. This is called the principal.

  2. The lender charges you for borrowing this money. This charge is called interest, which is usually a percentage of the principal.

  3. The interest is added to the principal, increasing the total amount you owe.

  4. If the loan has fees, these are also added to the total amount you owe.

  5. You make payments over time to pay off the loan. Each payment reduces the amount you owe.

  6. If you make all your payments on time, by the end of the loan term, you will have paid back the principal plus the interest and any fees.

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