Final answer:
Interest is the money paid to a creditor in addition to the original amount borrowed. It is how creditors profit and it significantly increases the total amount paid over the life of a loan. Understanding interest rates and terms is essential to manage debt responsibly.
Step-by-step explanation:
The term that represents the amount of money paid to a creditor in addition to the original amount borrowed is known as interest. This interest is what creditors use to generate profit and compensate for the risk taken in lending money. When you make a payment on a debt, part of your payment goes towards reducing the principal, which is the original amount borrowed, while another part of the payment covers the interest.
For example, on a $1,000,000 loan with a payment of $5,995.51 a month over thirty years, you will have paid more than twice the original loan amount due to interest. This illustrates how significant the impact of interest is over the life of a loan and why it's essential for borrowers to understand the terms and total cost of borrowed money. Borrowers should always consider the rate and terms of interest in any financial agreement to avoid taking on more debt than they can afford.