Borrowing money for the first time is a big deal, and it’s something many teens will face – whether it’s for a first car, livestock, a starter credit card, or something else that costs more than what’s in your wallet. Borrowing can be helpful, but only if you understand how it works. One of the most important parts is interest rates.
So, what does borrowing mean? When you borrow money, someone (usually a bank or lender) gives you money now, and you agree to pay it back later. But you don’t just pay back what you borrowed, you pay more. That extra amount is called interest.
An interest rate is the percentage the lender charges you for using their money. Think of it as a “rental fee” for borrowing cash. If you borrow $100 at a 10% interest rate, you might end up paying back $11. In simple terms, higher interest rates mean paying more over time and with lower interest rates you pay less.
Interest rates matter because even a small difference in the number can change how expensive a loan becomes. For example, getting a loan for a used car at 6% interest might be manageable, but borrowing on a credit card at 25% interest can get you into trouble fast. High interest loans and credit cards can turn into bad borrowing quickly if you don’t pay attention to your interest rate.
Before you borrow, it’s important to build a simple budget. This means looking at how much money you earn and how much you will owe each month. If your loan payment plus interest doesn’t fit into your budget, it may be a sign you may need to borrow less or wait.
Your choices also affect your credit score, basically your financial report card. Paying on time helps raise it. Paying late – or taking on too much debt – can hurt it. A good credit score and history can help in the future as you prepare to purchase your first home or other big assets.
The best thing you can do is ask questions before borrowing. Talk with your parents, local community banker, teacher, or another adult you trust. Experts say rates may slowly go down through 2026, but they probably won’t drop suddenly. So, if you’re thinking about borrowing soon – like for a first car – it’s important to understand that today’s rates are manageable but still require planning so you don’t end up paying more than you expected.
Erin Harvey is the vice-president & Compliance Officer at Lamar Bank & Trust Company in Lamar, Mo. She can be reached at [email protected].
