Interest Rate

What is an Interest Rate?

The interest rate is the amount a lender charges a borrower and is the percentage of principle – the amount loaned. On a loan, the interest rate is typically noted on an annual basis known as the (APR) or annual percentage rate. The interest rate can also apply to the amount earned at a bank or credit union. An interest earned can come from such things as a savings account or certificate of deposit.

 

Keynotes:

  • There are varying degrees of risk that you are evaluated as, as a borrower. You will have a higher interest rate if you are considered a high risk borrower. Things like credit score can affect this.
  • Most mortgages utilize what is called simple interest. Some loans use a type of interest known as compound interest. This type can be applied to the principle but also to the accumulated of past periods.
  • Interest rate can refer to the amount you earn of that you pay out depending on the bank or credit union and the type of account your dealing with.
  • The interest rate is the amount charged with the principle by a financial institution or lender to use towards acquiring an asset.
  • Consumer loans typically use an APR, this doesn’t use compound interest.

Understanding Interest Rates

A borrower is charged a set amount based on a percentage that is alongside the principle amount for use to gain an asset. Assets borrowed can be vehicles, cash, consumer goods and property.

Interest rates always apply to most lenders or borrowing transactions. The average consumer doesnt have $250,000 for a home so that money is usually borrowed from a lender. An individual can launch a startup or fund a business, potentially you might even have a college fund setup for tuition. Businesses can get loans to fund their various projects and expand operations by purchasing buildings, assets, land clearing operations. This money is either received as a lump sum or can be repaid at a predefined date.

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