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How To Calculate The Compound Interest Most clients visiting credit counselors seek to understand the explanation of APR, that is, annual percentage rate which is the amount the lender charges on loans and credit cards. In most cases one finds themselves in a debt situation if they acquired a car through a loan if they […]

How To Calculate The Compound Interest Most clients visiting credit counselors seek to understand the explanation of APR, that is, annual percentage rate which is the amount the lender charges on loans and 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. APR on a credit card is used to determine the amount that one has to pay monthly to the lender to cover minimum charges and also the interest that the credit card attracts. 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. It is also worth noting that amount arrived at using APR does not imply the amount that one should pay the monthly bill but rather the interest while each credit card has unique 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. The rates of a loan agreement are not the only considerations before signing loan agreement as one also needs to inquire about the mode of payments as well as the length of loan repayment. It is also vital that one discusses the additional fees such as payment protection insurance before signing the agreement. 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.Getting To The Point – Resources

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