Interest is the price of borrowing money. This lesson explains what the annual percentage rate (APR) on a loan or credit card measures, how each payment is split between interest and the amount still owed, and why the same debt costs more in total the longer it takes to repay.
It matters because the monthly payment is the number most people see, and it says little about the total cost. Two ways of repaying the same debt can have very different payments, very different lengths and very different amounts of interest. Federal rules make lenders state their prices in a standard way so that those differences can be seen.