Interest is like a rent payment on a loan—it’s an amount that must be paid regularly until the loan is repaid in full, a bit like the rent you pay for the time you live in rented accommodation.
Interest rates are calculated as a percentage of the loan amount. The interest rate is set according to the type of loan, as well as many other factors including:
Depending on the type of credit you use, the interest rate can vary significantly. For example, the interest rate on a line of credit is lower than on a personal loan.
Interest payable on a loan, a line of credit or a credit card is calculated according to pre-set rules.
Interest amounts are usually added to the balance owing at the end of each month.
Want to know more about this topic? Find out how your credit card works.
If you borrow money, you must pay interest. But, if you invest money in a certificate of deposit, for example, you’ll receive interest. In this case, the investor is the lender and the interest paid compensates for the fact that the investor can’t access the money while the borrower uses it.
The power of compound interest is what allows investors to grow their savings. If you reinvest the interest you earn, this will also generate interest, which makes your savings grow over time.
Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank of Canada.
The articles and information on this website are protected by the copyright laws in effect in Canada or other countries, as applicable. The copyrights on the articles and information belong to the National Bank of Canada or other persons. Any reproduction, redistribution, electronic communication, including indirectly via a hyperlink, in whole or in part, of these articles and information and any other use thereof that is not explicitly authorized is prohibited without the prior written consent of the copyright owner.
The contents of this website must not be interpreted, considered or used as if it were financial, legal, fiscal, or other advice. National Bank and its partners in contents will not be liable for any damages that you may incur from such use.
This article is provided by National Bank, its subsidiaries and group entities for information purposes only, and creates no legal or contractual obligation for National Bank, its subsidiaries and group entities. The details of this service offering and the conditions herein are subject to change.
The hyperlinks in this article may redirect to external websites not administered by National Bank. The Bank cannot be held liable for the content of external websites or any damages caused by their use.
Views expressed in this article are those of the person being interviewed. They do not necessarily reflect the opinions of National Bank or its subsidiaries. For financial or business advice, please consult your National Bank advisor, financial planner or an industry professional (e.g., accountant, tax specialist or lawyer).