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Calculating APR For Compound Interest

According to workers in the banking industry one major force that has influenced the industry is compound interest which has brought good returns to people who are bold enough to invest and also to banking and lending institutions. On the other hand most of the people borrowing money from different financial institutions have encountered the term APR, standing for annual percentage rate, where most people do not understand the how to calculate the ratio. Most people are in debt situations either due to mortgages or due to loans which most people take when purchasing cars. 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. Annual percentage rate is defined as the amount of interest that one has to pay annually to a lending institution depending on the outstanding balance.

There are different types of rates of interest being offered by the lending institutions where the most common types are variable interest rates and fixed interest rates. With fixed interest rate the amount that an individual pays as interest decreases or increases with time but for the fixed interest rates one pays the same amount throughout the loan 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. Other areas needing to be discussed before one signs the loan agreement include the loan repayment period length and the mode of payment. To protect the clients from over-exploitation from the banks; different policies have been formulated.

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. An example of an institution that has set its APR at 12 percent, when one takes a loan of 1000, to determine the interest charged, we multiply 12 percent with 1000 then divide by 12, the number of months in a year.The Path To Finding Better Finances

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