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. For individuals using credit cards from different lending institutions, they can also calculate APR that their cards attract monthly to cover minimum charges and interest that the credit card attracts monthly. Other factors that influence the amount that one pays in a particular month is whether one has been paying the minimum amount or they have been paying additional payments in an attempt to clear their balances. The APR calculator does not calculate one’s monthly bill, and each credit card has specific charges. 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. By using an example of a lending institution which has set its APR rates at 9.5 percent we divide the value by the number of months, 12, which gives us 0.79 percent representing the rate per month that one is charged on the outstanding balance. If one took a loan of 10000, using the set rate of 9.5 percent they are required to pay 79 per month. In the case of compounding rates if one had not cleared their balances for the past months, the value increases. 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. It is also vital that one discusses the additional fees such as payment protection insurance before signing the agreement. The clients ought to be given the figures and facts of the loan agreement by the lenders before they sign the loan agreement. Compound interests may be fixed or variable where one pays the same amount of money throughout the repayment period while with variable rates the amount may increase or decrease.
Investors also use compounding interest in relevant investment decisions.The Path To Finding Better Finances