BY NATHAN SPIECKER for WEEKLY VOLCANO | 10/23/2026
When a refrigerator stops working, waiting for the next paycheck may not be an option. We might compare a credit card with an installment loan and find that both offer a way to pay for the replacement over time. One emphasizes a low monthly payment. The other highlights its interest rate and total repayment amount.
Both payments might fit the budget. But before choosing, there’s a question worth asking: how much will the refrigerator cost by the time we’ve finished paying for it? The answer depends on more than the price on the receipt.
APR, or annual percentage rate, helps us compare the cost of borrowing. For an installment loan, APR generally includes the interest rate and certain fees. Credit card APRs generally describe the interest rate applied to a balance, while many fees are listed separately. So, the APR is useful, but it doesn’t tell us everything we need to know about an offer. The Consumer Financial Protection Bureau explains the distinction in its credit card guidance.
The interest rate is the price we pay to borrow money. The principal is the amount borrowed, excluding interest and fees. As we make payments on a balance that is accruing interest, some of each payment goes toward the interest charged, and the rest reduces the principal we still owe. When a large share of a payment goes toward interest, less is left to reduce the balance. The principal comes down more slowly, and the accumulated interest may mean that it takes longer for us to pay off what we borrowed.
This is especially important to remember with credit cards because we can carry a balance from one month to the next. Interest is commonly calculated daily, based on the balance and the card’s terms. Paying down the balance sooner generally reduces the interest that can accumulate. CFPB guidance explains how card issuers calculate interest.
Consider a $2,000 credit card balance with a 20% APR. To keep the comparison simple, let’s assume there are no new purchases or fees, and the APR stays the same. We’ll compare two monthly payments: $50 and $100.
With a $50 monthly payment, it would take more than five and a half years to pay off the balance, with about $1,323 in interest. The total paid would be about $3,323.
With a $100 monthly payment, the balance would be paid off in a little more than two years, or 25 months, with roughly $453 in interest. The total would be about $2,453.
These are simplified estimates, not exact predictions of what a particular credit card will charge. Actual interest depends on the issuer’s calculation method, payment timing and account terms. But the difference is clear: paying $100 a month instead of $50 would save almost $900 in interest and get the balance paid off in less than half the time.
Many times, opting for a higher payment isn’t realistic for every household. Rent, groceries, utilities and other bills come first, and some months leave little room for extra debt payments. Still, when we compare financing offers, the monthly payment is only one part of the decision. We also need to know how long we’ll be paying and how much interest we’ll owe along the way.
Credit card statements show a minimum payment: the amount we must pay by the due date to keep the account from becoming past due. Paying at least that amount matters, as a late payment can negatively affect our credit score. But a minimum monthly payment doesn’t help us pay the balance off quickly.
When we make only the minimum payment, interest can take up a substantial share of what we pay, leaving less to reduce the balance. The balance then takes longer to pay off, and the total amount paid in interest can add up. Paying more than the minimum, when the budget allows, generally reduces the balance faster and can lower future interest charges. Using one of the many credit payment calculators available online can help us estimate how long it will take us to pay off our balance. (Credit card companies are supposed to provide minimum payment calculations on your monthly statement.) We can also use this tool to visualize how a few extra dollars towards a payment can save us time and money in the long run.
The same trade-off can arise with installment loans. A longer repayment period can lower the required monthly payment, but it can also increase the total interest paid during the life of the loan. A smaller payment may make a purchase easier to manage now while keeping us in debt longer.
Interest isn’t the only cost to check. Credit cards may charge annual fees, balance-transfer fees, late-payment fees or other fees described in the agreement. Installment loans can also have fees, depending on the lender and product. Those charges can change which offer is less expensive, even when one advertises a lower rate.
Promotional APRs deserve a look, too. A credit card may offer a low or zero-percent rate for a limited period, followed by a higher rate. Before accepting the offer, we should know when the promotion ends and what rate applies afterward. The details matter, especially if we expect to still owe money when the promotional period expires.
Before accepting a credit offer, it helps to write down four things: the APR, any fees, the minimum or required monthly payment, and the estimated total repayment. For a fixed-payment installment loan, the lender may provide a schedule showing the payment amount and total repayment. With a credit card, the final cost is less predictable if we keep making purchases, change our payment amount or face a variable APR.
If an offer doesn’t make the cost clear, we should ask questions before agreeing. We shouldn’t have to rely on the advertised payment alone to understand what we’re signing up for. Borrowing can help us manage an expense when paying upfront isn’t possible. But a manageable payment doesn’t automatically make a purchase affordable over the long run. The APR, fees and repayment period help us see what the borrowing could cost.
Even then, cost is only part of the decision. A low rate, a small payment or an appealing rewards program can all make a credit offer look attractive. Next week, we’ll look at what those offers may leave out.
This column is produced by the Washington State Department of Financial Institutions, Washington’s financial services regulator, to provide consumer education and protection. Learn more or file a complaint at www.dfi.wa.gov.
