Calculating APR For Compound Interest
From the statistics obtained from the banking industry one of the major influence on the profits made by the banks and also individuals who have invested in different other industries is the use of compound interest which has benefited both the lending institutions and individuals investing. Most of the individuals who are in need of cash to meet different need have encountered a commonly used word in the banking industry the APR, initials standing for annual percentage rate, but not every person knows how to calculate the figures while others are not aware of the meaning. Lending institutions have noted an increase in number of individuals seeking loans to either purchase a home or a car. When one is seeking to acquire a credit card from a bank or lending institution it is advisable that they compare the interest that a card will attract to ensure one does not incur huge interest charges where one can compare the APRs from the different institutions. APR or annual percentage rate determines the amount of money one pays as interest on their loan to a lending institution and usually depends on one’s outstanding balance.
The two main kinds of interest rates charged by most lending institutions to the borrowers are the fixed interest rates and variable interest rates. If according to the loan agreement the borrower is paying the loan in a fixed interest rate, they pay the same amount in every installment throughout the repayment period but if the borrower and the lender agreed to variable interest rates the value of installments may either increase or decrease during the repayment period. It is important that the borrower seeks clarification from the lender on some key issues that affect loans. Lending institutions are bound to present the borrowers with all the figures and facts concerning their loan agreement to enable them to make informed decisions. When discussing the loan agreement the borrower should also seek verification on added fees such as payment insurance protection fee as the fees are optional with some institutions. An individual seeking a loan from a financial institution also needs to discuss the loan repayment period length as well as amount they will have to pay monthly as installments. Banks offering lending services are regulated by instituted policies which seek to protect clients from exploitation by the banks.
If one is interested in determining the amount they pay in a month as APR charges, they multiply the outstanding balance of the loan with the set rate and divide the figure with 12 which is the amounts of a month in a year. Taking an instance where a bank has set their rates at 12 percent , and one has an outstanding balance of 1000, to determine the value that one pays in the month one multiplies the rate with outstanding balance, which results to 120, which is divided with 12, meaning the client pays at a monthly rate of one percent and during the month they paid 10 shillings as interest.How to Achieve Maximum Success with Money