The Dangerous Misconception About Interest Rates

Some people hear “30% interest over 5 years” and think:

“If I borrow $1,000, I’ll just pay back $1,300. That’s only 30% extra—no big deal!”

And somewhere, a payday lender just wiped away a tear of joy because that’s exactly what they want you to believe.

Let’s fix that misunderstanding before it costs you thousands.

1. Interest Isn’t a One-Time Fee—It’s a Yearly Tax on Your Debt

Thinking of interest like a restaurant tip? Wrong.

Tip mentality: “I’ll just add 30% to my bill and call it even.”
Reality: “I’ll charge you 30% this year… then 30% on whatever’s left next year… and the next…”

This is compound interest, and it turns small debts into financial monsters.

If you borrow $1,000 at 30% annual interest and make no payments, here’s what happens:

Year	Balance	What Happened
1	$1,300	“Okay, that’s manageable.”
2	$1,690	“Wait, why is it growing?”
3	$2,197	“This feels illegal.”
4	$2,856	“I could’ve bought a used car instead.”
5	$3,712	“I don’t even remember what I needed the money for.”

Total paid: 3.7x your original loan—not “just 30% more.”

Sure, if you pay monthly, your debt won’t balloon to $3,700. But you’re still getting wrecked.

And guess what? Most early payments go straight to interest, not the principal.

30% interest isn’t “a little extra”—it’s highway robbery in slow motion.
If you wouldn’t agree to “Give me $3 for every $1 you borrow,” avoid 30% loans.
The longer you take to repay, the more you get crushed.

Before taking a high-interest loan, ask yourself:
“Would I light $700 on fire just to borrow $1,000 today?”

If the answer is no, walk away.