Your Guide To Understanding Interest Rates

When it comes down to money management, one of the most important things that we should all understand prior to taking out a loan is how interest rates work. When taking out any form of loan, it is so important to know what interest you will be looking to pay and use it as the basis for comparison when it comes to finding the best deal for you. Interest is essentially the amount of money you will be looking to pay back on top of your loan amount. If you are looking to take out a loan and want to know more about what certain interest rates mean for you and your money, then you have come to the right place!

APR
The Annual Percentage Rate is a level of interest and fees that arelculated across the space of a year and works out how much you would be looking to repay over the space of a year when taking out any kind of loan. The APR is a legal requirement to be shown when dealing with short term loans, personal loans, credit cards, quick loans and hire purchase agreements. A lower level of APR will translate to you making smaller monthly repayments, which is precisely why it so important to assess the APR rating you are offered before making the decision to take out a particular loan. Here at Wizzcash, for example, our representative APR is 1265%.

Compound interest

Compound interest is typically associated with saving accounts and refers to recurring interest. This means that after you have accumulated interest on an amount of money further interest will be calculated using the new amount. For example, if you were to open a savings account and deposit £2000 into a bank that offers 10% interest a year, you would have amassed £2200 at the end of the first year. After this point you can either take the money out of your account or may prefer to keep the money in the account and allow a further 10% to accumulate on top of the £2200 you already have, thus earning you £2420 at the end of the second year. This type of interest allows you to reinvest your money and increase your earnings exponentially.

Fixed interest

Fixed interest rates are those which do not change over the course of the repayment period and is typically associated with those borrowing for a mortgage. A fixed interest rate is helpful in terms of keeping your repayment amounts set so that you are better able to budget prepare for how much you are going to be spending. This allows stability when it comes to maintaining repayments despite the economic climate at any given time.

Variable interest

Variable interest is a type of interest that fluctuates and changes in accordance with certain factors. These interest rates are typically affected by economic changes or international rates and are very much influenced by external factors, which can be somewhat unsettling for some. Variable interest is an appealing option for those who would prefer to not have to pay a set interest amount until the end of their repayment term and would rather reap the benefits of any drops in interest rate at certain times.

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