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Interest rate is the percentage charged by a lender to a borrower for the use of assets, usually expressed as an annual percentage of the principal, the amount of money borrowed. For instance, if you take out a loan with a 6.1% interest rate, it means you will pay 6.1% of the principal amount in interest per year over the loan duration.

When calculating total interest, a higher interest rate results in a greater total interest paid over the life of the loan. To emphasize,a loan with a 6.1% interest rate would incur more interest than a loan with a 5% interest rate, assuming the same principal and duration. It's crucial to understand your interest rate as it significantly affects the total cost of your loan.

The principal amount in loan terms refers to the initial sum of money borrowed from a lender. This amount is the basis for calculating both the interest payments and, often, the regular payments toward the loan balance. In our exercise, the principal amount is $32,000.

This number is vital because the total interest paid on a loan is directly proportional to the principal. The larger the principal, the more interest you will end up paying if all other factors are equal. It's important to borrow only what you need to avoid unnecessary interest charges.

Loan duration, also known as the loan term, is the period over which the borrower agrees to pay back the loan to the lender. Longer loan durations mean that interest is applied to the principal for an extended period, usually resulting in more total interest paid. In contrast, a shorter duration means less time for interest to accrue, resulting in lower total interest payments.

In our exercise, a ten-year duration is applied. If we change the duration to five years with the same interest rate and principal, the total interest would be lower. It’s often a delicate balance between manageable monthly payments and the desire to minimize total interest paid over the life of a loan.