To really understand how loans work (and how they can get you into big trouble), let's look at what happens with a loan one billing cycle at a time. Antonia is buying a new riding lawnmower which costs $1299. The store is offering a payment plan allowing her to pay it off over a year with a 14.95% APR. They tell her that her monthly payment is $117.21. Monthly Interest: Her APR is 14.95%, so we can divide that by 12 to find her monthly interest rate: 1.25%. We multiply this by her current balance to find that for first month the interest charged is 0125 . 1299 =16.18 So by the time Antonia's statement arrives, she owes $1315.18. When she makes her payment of $117.21, that amount is subtracted from her balance, so that she now owes 1315.18 - 117.21 = 1197.97. Now you try: how much interest will she be charged in the second month? And after she makes her second payment, how much will she still owe