Interested In No Interest?

Yesterday a number of colleagues at Synergy Merchant Services were having quite an interesting conversation. Mixed in with the general banter and joke telling, we discovered a lot about each other’s personal finances. Interestingly enough, the main topic of the discussion was, in fact…interest.

Like death and taxes, we all, at some point in our lives will be unable to avoid having to pay some form of interest towards a balance. Houses, condos, cars, student loans and credit cards are among the most common reasons that interest is required to be paid, as the balances due generally never make for a “pay in full” type of situation.

One associate remarked about her student loans that she began paying off a number of years back after graduating from university. Originally, she was requested to make minimum monthly payments of $150.00 to pay off the loan. The payback information provided by her financial institution reminded her that by making these payments, she would be able to pay off her debt in full by the year 2022!

Our associate could not even recall what her interest rate was. However, she calculated that making the requested minimum payments for the number of months leading up to her final payment would have totaled an amount in excess of $10000.00 more than what she had borrowed to put towards her education!

Needless to say, she made much larger payments towards the student loan on a regular basis and eventually paid it off within two years of her graduation date. The concept of interest, in this case, she felt was “ridiculous”.

Another associate recalled purchasing his first home – a one bedroom condo in Toronto. Excited about the prospect of having his own place to live, he told us of how he first learned about how much his mortgage payments would be once he moved in. “Less than a grand a month!”, he excitedly told us. The team remarked on the sweet deal he got, of course.

Then he proceeded to reveal how shocked he was to discover that of the approximate grand he was spending monthly on mortgage payments, about $400.00 of that amount was actually going towards his principal balance. He couldn’t believe that the majority of his payments were being “thrown away” into interest payments. It was “unbelievable” he exclaimed.

After the discussion, we concluded that interest can be regarded as a life requirement since large sums for major purchases are generally unaffordable. However, the biggest problem with interest is the idea that you never really know how much you will pay over time. Factors including the length of time it takes you to pay off the balance and the amount of the payments both help to determine what the actual cost of something really is. And how much interest you will have had to pay as a result.

Thankfully, interest is never something that a client of Synergy Merchant Services has to deal with. And our clients are very interested in that!