How To Calculate The Compound Interest 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 clients find themselves in a debt situation when they acquire cars on loan or mortgage, but most of them fail to understand how the amount arrived at as interest charges were calculated. 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. 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 the amount one pays as the APR to a lending institution one multiplies the number of payments annually with the rate of payment. Using an example of 9.5 percent APR it is divided by 12 which gives 0.79 percent monthly interest rate on one’s outstanding balance. If one has a loan of 10000 they are required to pay an interest of 79 per every month using the 9.5 APR. For loans acquired on compounding rates basis, balances from the previous months also add to the outstanding balance. 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. It is also vital that one discusses the additional fees such as payment protection insurance before signing the agreement. The clients ought to be given the figures and facts of the loan agreement by the lenders before they sign the loan agreement. 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.The Ultimate Guide to Funds

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