Calculating Compound Interest And The Use Of APR Calculator
Most clients visiting credit counselors seek to understand the explanation of APR, that is, annual percentage rate which is the amount the lender charges on loans and credit cards. Most of the clients find themselves in a debt situation when they acquire cars on loan or mortgage, but most of them fail to understand how the amount arrived at as interest charges were calculated. The APR on a credit card determines the amount that one has to pay to the lender to cover minimum charges and the interest on the credit card. The amount of money one pays at the end of a particular month also depends on whether one has been paying the minimum payments or they have been paying additional charges to reduce their outstanding balance. Figures arrived at using the APR does not imply one’s monthly bill for a specific month but the interest that one pays while each credit card has specific charges depending on the lending institution. There are set regulations which control the APR rates charged by different lending institutions which aim at protecting customers from over-exploitation.
To calculate APR, the rate of a payment period is usually multiplied by number of payments annually. Taking an example of a lending institution which has set its APR rate as 9.5 percent, it means one is charged 0.79 percent monthly on the outstanding balance, figure arrived at by dividing 9.5 with 12 which is the number of months per year. If one has a loan of 10000 they are required to pay an interest of 79 per every month using the 9.5 APR. If one has not cleared their previous months charges, they may lead to an increase in the amount is required to pay especially in cases of compound interest. Before one signs the loan agreement they should also inquire about other essential factors such as the length of payment, and the mode of payment as much as they are required to verify the rates. Other fees that are also included in a loan agreement such as the payment protection insurance need to be discussed before one signs the loan agreement. The lenders should present a client with the all the facts and figures before they sign the agreement including the APR to allow the clients to make an informed decision. One also needs to determine whether the APR is fixed or variable where with variable they pay amounts of money in increasing or decreasing order while for fixed rates the amount remains constant.
Compounding interests are not only used by lenders, but they are also used by investors when they are returns from an investment.5 Uses For Finances