Learning The “Secrets” of Money
Calculating Compound Interest And The Use Of APR Calculator
One of the most asked questions by clients visiting a credit counselor is the explanation of annual percentage rate, the APR, and how to calculate the same, but APR is simply defined as the amount that one pays as interest on loans or credit cards. Most of the individuals seeking help from the credit counselors have been paying loans either to pay for a car they acquired on loan or to pay for mortgage in case they acquired their home through a mortgage loan but not everyone understands the calculations that lead to the figures they are paying monthly. 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. The total amount that one has to pays to the institutions depend on their outstanding balance one pay off each month and if one made minimum payments or additional payments to clear the balance. The APR calculator does not calculate one’s monthly bill, and each credit card has specific charges. In most countries the lenders are required to disclose their lending rates in standard form to avoid customer over exploitation by the lending institutions.
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 took a loan of 10000, using the set rate of 9.5 percent they are required to pay 79 per month. 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 should also seek to determine whether their interests rates are variable or fixed where variable rates may go up or decrease with time but with the fixed rates payments remain constant throughout the payment period.
The investors also use compounding interest as well as APR calculator to determine the returns from an investment.Short Course on Tips – Getting to Square 1