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Calculating Compound Interest And The Use Of APR Calculator

When clients seek services of a credit counselor one of the often asked questions is the explanation of APR and the how one can come up with the figure, but APR or annual percentage rate is the amount that one pays an interest on loans from a lending institution or when they use credit cards. In most cases one finds themselves in a debt situation if they acquired a car through a loan if they used mortgage when purchasing a home but they fail to understand the amounts they pay as interest charges by failing to understand how to calculate them. 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. 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. To avoid consumer exploitation by the lending institutions, the loan rates are usually regulated, and banks are compelled to disclose their rates to their customers.

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. One also needs to verify the additional fees associated with the loan such as payment protection insurance as they also have an effect on the compound interest. Lending institutions are required to present the facts and figures to their clients before they sign the loan agreement to allow them to make informed decisions. 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.The Best Advice About Finances I’ve Ever Written

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