No, not physically but they will hurt your financial goals if you do not completely understand them. When you are starting out on your financial journey you are not trained to look at interest rates. Most of us are just happy we got fifty euros in our pocket when we first start earning money. We know money comes in and goes out. Once we start going to university or getting a credit card that’s when interest rates start coming into play.
Although 2.5% on the paper might look like a small number on the paper, do not be fooled. Interest rates can be one of the biggest deciding factors in your financial life. The difference between a good and a bad interest rate to a car, credit card, mortgage, and so much more can literally be the difference between tens of thousands of euros! It might not seem to be a lot, in the beginning, take caution to your calculations. Even a cellular phone bill can hit you with a damaging interest rate which if you’re straight out of secondary school can pile up quickly.
If you are just recovering from a damaged credit score or getting a new credit card you might not have a lot of options in your choice of low-interest rates. But no matter, you should always be looking at that tiny number and ask yourself, “How much will this cost me over the cost of the repayment? And can I negotiate it to a smaller value?” If you are in a situation where you can avoid paying interest, like paying your credit card in full, avoid it at all costs.
There are times where interest rates can do you good. Borrowing safety is important especially when you are buying a home. This answer will vary to each individual as it will depend on what types of assets and liabilities you own. Take the time to calculate whether you can sustainably pay it off without breaking your budget.
All in all, be careful of those pesky little numbers. These seemingly harmless numbers can haunt you for a very long time if you do not take the time to truly understand them in your financial journey. Do not be afraid to ask a professional to help you because they could save you a heck of a ton of money before you take a blind spot and dig yourself into a hole.
Lucas Zhang was a Finance major at Ohio State University. He writes about finance, mortgages, and technology for Irish Mortgage Brokers.