subject: Interesting Things To Know About Interest Rates [print this page] When talking of interest rates, people generally think of textbooks definitions of simple or compound rate of interest. In the practical world, however, the interests charged on loans differ from jurisdiction to jurisdiction and lender to lender. Interest rates also differ on the type of loan and repayment terms, i.e. the number of months/years needed to settle the debt.
These days, public and private sector banks, financial institutions and housing societies provide or arrange any amount of loan on easy terms, low interest rates and flexible procedures. In certain jurisdiction, lenders have to declare the interest rates and amount and the ultimate cost of the loans before approving them. Even then, it is in the interest of the borrower to know how lenders calculate interest on loans.
Annual Percentage Rate or APR is the name given to interest charged on personal loans, mortgage and credit cards, which is the annualized rate of interest (for whole year) as opposed to monthly rate. APR may vary from country to country and lender to lender. In general, there are two types of APR: the Nominal APR (the simple interest rate applied for a year) and the Effective APR (compound interest + loan servicing charges and fees, applied across a year).
The APR also depends on the type of loan, i.e. mortgage, auto loan, and loans for home improvement, education, vacations, or for clearing the existing debt. It is a good to know interest rate on personal loan and the amount you will be paying along with the repayments. The interest rate and amount depends on various factors as follows:
Type of loan (secured or unsecured)
Loan amount
Borrowers status (employee, businessperson, retired etc.)
Rate (fixed or variable)
Repayment schedule (short-term or long-term)
Whether or not payment protection insurance is taken
Calculating the rate and amount of interest is often confusing. Once you decide on basic factors listed above, you can negotiate interest rates with the lenders. It is good to know that loan services providers offer loans on low interest rates, with many lenders offering different rates for different types of loans. So when taking a loan, ask for special rates, for example, business loan interest rate or car loan interest rate. If you are taking debt consolidation loans, then ask rates for such loan. Again, there are different rates for secured and unsecured loans so always ask for secured loans interest rate or unsecured interest rate.
