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What's An Interest Rate?
By MKOC Staff

Good question! Interest rates are a really big deal - especially now. It's harder to get a student loan, and if you are able to get one, expect to have a high interest rate. But what does that mean?

For all of you that are unfamiliar with what an interest rate is, it's the fee that you pay for borrowing money. Yes, borrowing money is not free. It isn't enough that you pay back the amount of money that you borrowed; you have to pay the bank an additional sum for having the opportunity to borrow that money.

If you're still confused let's think about it this way: It's Friday night and you want to rent a movie. You go to your local movie rental place and you find the perfect movie. You take the movie to the counter and you tell the clerk you want to rent it and you promise that you'll bring it back the next day. But you can't just take the movie and leave, you have to pay a fee for renting it.

Student loans work the same way. You have to pay for the privilege of borrowing the money. You can't just go up to a bank teller and say, "I'd like to borrow $25,000 for school. Oh and don't worry, I'll pay you back the $25,000 in 20 years." It doesn't work that way. The bank is just like the movie rental place, they want to make a profit for lending you that money. If they simply gave you the $25,000 and didn't charge interest, then they wouldn't have made any money off of the transaction. A bank is a business and businesses thrive on profits. If they have something you want, then they want to make sure that they capitalize on that advantage.

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