Types of Interests Rates and How They Work

Most people don’t know about all of the different interest rates that exist, but it is very important to learn about this before getting a loan. It can help you make the right decision to save as much money as possible in the future. The interest rate that you get on your loans and credit cards will have a huge impact on your ability to repay your debt. This is just one of the reasons why you need to understand these things.

Simple Interest

First we will take a look at simple interest or nominal interest. This type of interest rate is based on the original amount of the loan you get. It is very straightforward and not complicated in the slightest. For example, if you borrow £1,000 at a 10% interest rate, you will have to pay back £1,100 (not including any other fees).

Compound Interest

Compound interest is a bit more involved than simple interest. Where simple interest is just a percentage of a total amount, this type of interest increases continuously over time. If you put your money in a savings account, you will keep earnings more every single year. This can also apply to borrowing though. Many banks use compound interest with money that their customers borrow from them, but this is not always the case.

Fixed Rate vs. Variable Rate

When you get a loan of any kind, you will have either a fixed or variable interest rate. It is crucial that you understand the difference between these two types so that you can choose one that matches your needs. You don’t always get to decide, but a lot of private lenders are extremely flexible.

A fixed interest rate does not change over the course of the loan at all. A variable interest rate starts off at a certain amount and is subject to change after a certain period of time. Many people feel a lot more comfortable with fixed rates because they do not fluctuate at all. It is important to keep in mind that you do have the potential to save money with a variable rate, especially if it goes down. You never know what will happen though, so it is a risk.

The lender can choose to lower or increase a variable interest rate according to many different factors, including the market as a whole. If you improve your credit while you still have the loan, you might be able to convince them to lower your rate.

Annual Percentage Rate

The term annual percentage rate or APR is very common when discussing and learning about loans. It is essentially the number that represents the yearly rate of interest on a loan. It gives potential borrowers a complete idea as to how much their loan is going to cost overall. This number includes upfront fees and other charges that the lender might require you to pay.

It is very important that you find out what the APR is with various lenders before deciding which one to get a loan from. By doing this you will be able to choose the least expensive borrowing option overall. While interest is just one factor to consider, it is very important for many reasons.

Annual Equivalent Rate

The annual equivalent rate or AER is the rate that represents the total amount of interest your money earns in a given year. Everyone needs to have at least a fairly good understanding of what it’s all about, as it will affect your ability to earn money on your savings.

Introductory Rates

When you are looking into some of your credit card options, you will likely notice that some of them come with 0% interest. This is just the introductory rate, which means that it only applies for a specific amount of time. Usually this is about a year, though it depends on the card. A credit card with a 0% introductory rate can be beneficial for a number of reasons. If you are trying to pay off your current debt, you could switch it over to a card with a zero percent rate. You will only have no interest for a limited time, but it is still something to keep in mind.

The more you learn about the different types of interest rates, the better your chances will be of getting the most out of your loans and savings. You might be surprised at all of the negative consequences and missed opportunities you have suffered from by not knowing these things. If you are planning to get a loan anytime soon, you definitely need to focus on your rate. Take the time to get quotes from numerous lenders so you don’t get stuck with an outrageously high rate that will make it difficult to pay back your debt.

Basic Credit Card Tips That Can Help You in a Big Way

If you are planning on obtaining a credit card or already have one, there are some very basic but helpful tips you can follow. These tips can provide you with an easy way to get the most out of your card while still being responsible. The fact is that having a credit card can be incredibly advantageous, especially if you know how to use it properly. In this article you will learn some great tips for making the most out of this line of credit.

Balance Alerts Can Help Keep Your Spending Under Control

Those who are worried about getting carried away with using their credit card should opt to receive balance alerts. These alerts will notify you via email and/or your smartphone when your account reaches a certain amount. This can help you maintain healthy spending habits so you don’t get carried away. In fact, it is one of the best ways to ensure that you don’t become reckless with your card.

Use Your Online Banking Tools

Chances are you already have access to a bunch of online banking tools and you don’t even know it. You can use these tools to analyze your spending, which will make it easier to stay within your budget at all times. These tools can warn you if your spending habits are starting to go off the rails. This is definitely something that you will want to know about early on. Take the time to look around on your bank’s website to see which specific tools they offer.

Mid-Cycle Payments Can Raise Your Credit Rating

Your credit card issuer turns in monthly reports on your account to the three major credit reference agencies. This can be a good thing or a bad thing, depending on what your spending habits are like. Those who charge a lot to their card every month should consider paying off their balance in the middle of the cycle. This can keep your credit utilization at a very healthy level, which in turn can improve your credit. If you are trying to raise your score as much as possible, you will absolutely need to keep this in mind.

Use the Rewards Mall

Anyone who enjoys online shopping will certainly want to look into the rewards mall that their credit card issuer offers. Here you will find all sorts of different things that you can get to earn additional rewards. You will most likely have a lot of items to choose from, so take the time to explore your options. This is by far one of the best ways to go about earning rewards with your card. You should be able to find the rewards mall somewhere on your credit card company’s website.

Switch Your Due Date

Nobody wants to miss a payment on their credit card because of all the consequences that are associated with this. You might be able to change the due date of your credit card bill if you suspect that you won’t be able to pay it. A lot of credit card companies will allow you to do this online, so it is very convenient. It is better to switch the date rather than risk being late on a payment, which can negatively impact your credit. You will also incur additional fees, which can make it difficult to completely clear your balance.

Take a Strategic Approach to Your Spending

If you want to maximize your potential for earning rewards, you will need to come up with an effective spending strategy. The best way to accumulate as many points as possible is to choose just one card to use. Those who have numerous cards will have to figure out which one offers the best rewards for the least effort.

Look out for APR Promotions

A lot of credit card companies offer special promotional deals for interest rates that you will need to keep an eye out for. These deals can save you quite a bit of money over time. Take some time to look for cards that have a very long 0% introductory period for interest. This can help you get a new line of credit without having to worry about paying interest, at least for a while.

Owning a credit card is a big responsibility, which is why it is so important that you keep all of these tips in mind. There are all sorts of great things that come with using plastic, including rewards and a higher overall credit score. You do need to be very careful about how you use your card though, because it can get you into big trouble. Always remember to pay off the full balance on your card by the due date every single time. It is just too easy to get into debt if you don’t know what you are doing.