Borrowing money in the form of a loan has become quite common these days. Financial emergency can strikes any point of time especially when you are least prepared for it. With having shortage of cash in the savings account many people resort to take the help of loan to generate much needed cash. You very well know about the loan which is a financial source offered loan providers, individual lending institution, banks, etc.
In a same day, you are very well aware of the fact that interest is being charged by lenders to let you borrow cash any amount you want. So, when you borrow loan from any lender to generate certain sum of cash to pay off the pending debt, then you will be charged with interest rate. It is a percentage of the amount you owe that is added to your balance periodically as a fee for using the money for stipulated period of time.
Every loan, mortgage, credit card, etc, you have to pay interest rate as a fee which is to be calculated as an annual percentage rate of the amount you borrow. For the consumers is quite important for them to understand how exactly interest rate works for which you are paying extra from your pocket.
In a same day, you are very well aware of the fact that interest is being charged by lenders to let you borrow cash any amount you want. So, when you borrow loan from any lender to generate certain sum of cash to pay off the pending debt, then you will be charged with interest rate. It is a percentage of the amount you owe that is added to your balance periodically as a fee for using the money for stipulated period of time.
Every loan, mortgage, credit card, etc, you have to pay interest rate as a fee which is to be calculated as an annual percentage rate of the amount you borrow. For the consumers is quite important for them to understand how exactly interest rate works for which you are paying extra from your pocket.
In order to understand the working process of interest rate, you first need to understand the type of interest rate charged by the lenders. There are basically two types of interest rate charged and work differently that are as follows:
• Simple Interest: This is a flat rate interest which is levied on the principal balance that is owed. You can calculate this by making product of principal amount you borrow with annual rate along with time duration of a loan.
• Compound Interest: Compound interest on the other hand levy on the total amount along with on the interest and the fees.
Understanding the working procedure of interest rate also lead you to the way of how for different loan option it is being levied by the lenders.
Interest Rate on Credit Card
The interest charged on credit card is often termed as Annual Percentage Rate (APR) that takes into account not just the simple interest rate but also other fee charged by the lenders. The very purpose of this interest rate is to calculate total cost of loan. For example, if you borrow 1000 a loan, then APR would be 10% for which exactly 100 more has to be paid back.
Working of Interest Rate on Car Loans
Unlike other loans, interest rate work differently on the car loans in simple interest manner. You just need to pay interest charges on the principal amount. As an example, you get a loan of 10,000 for 5 years of time duration, then rate of interest you will be charged is of 5%.
Student Loan Interest Rate
If you have taken up a student loan or federal loan, then the rate of interest will work on the percentage of amount you borrow from the lenders.
• Simple Interest: This is a flat rate interest which is levied on the principal balance that is owed. You can calculate this by making product of principal amount you borrow with annual rate along with time duration of a loan.
• Compound Interest: Compound interest on the other hand levy on the total amount along with on the interest and the fees.
Understanding the working procedure of interest rate also lead you to the way of how for different loan option it is being levied by the lenders.
Interest Rate on Credit Card
The interest charged on credit card is often termed as Annual Percentage Rate (APR) that takes into account not just the simple interest rate but also other fee charged by the lenders. The very purpose of this interest rate is to calculate total cost of loan. For example, if you borrow 1000 a loan, then APR would be 10% for which exactly 100 more has to be paid back.
Working of Interest Rate on Car Loans
Unlike other loans, interest rate work differently on the car loans in simple interest manner. You just need to pay interest charges on the principal amount. As an example, you get a loan of 10,000 for 5 years of time duration, then rate of interest you will be charged is of 5%.
Student Loan Interest Rate
If you have taken up a student loan or federal loan, then the rate of interest will work on the percentage of amount you borrow from the lenders.
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