The interest rate
Interest rate is the price at which you can borrow money. When you borrow money you pay interest on the original amount, but also you pay interest on the interest accrued. Assuming you take a loan for three years, by year three, you have to pay the amount you have borrowed plus interest, inclusive of the interest from year two and interest on the interest from year one.
Of course in real life you repay a portion of the loan and interest every month. Inquire about APR (Annual Percentage Rate), the official rate used for borrowing. It includes the cost of the borrowing, which is the amount of interest charged and any associated fees that are automatically included, such as an application (origination) or annual (administration) fees. An APR gives you the overall equivalent cost of a debt, which you can then use to compare against other credit and loan products. It must be communicated to you by a lender before any agreement is signed.
There might be other costs to the loan like protection insurance. It’s cost isn't included in the APR. Therefore, some lenders deliberately load the cost of the insurance policies and make the loan rate cheaper.
Did you like this article?