Drug testing

Credit and Its Cost

What is Credit?
Credit is money granted by a lender (or creditor) to a debtor (or borrower) whereby the lender defers receiving payment of the debt for a period. In exchange for the credit allowed, the lender will get back the money lent plus interest. The borrower has use of the money immediately, rather than waiting until the money required is saved up.

It enables the borrower to pay for things immediately, even if they cannot afford to pay for it themselves. Interest is the compensation required by the lender for the use of his/her money. There is a time value to money because of inflation, by way of an interest charge.

What is the Cost of Credit?
The cost, or charge, for using credit debt is called interest. This interest can either be simple interest or compound interest.

  • Simple interest
    This is interest charged only on the principal amount borrowed. Simple interest does not add interest that's due, back on to the principal amount because it is usually paid out.
  • Compound interest
    This is interest charged, not only on the principal amount owing, but also on the interest that has been accrued on that principal amount. The interest is added on to the principal and then the new interest is calculated on the new total of those two items.

What happens is that there is a compounding effect, so that interest is charged on the interest. The result is that the lender receives a higher and higher return because the interest charge is levied, not only on the amount originally lent, but also on all interest due on the amounts over the term of the loan.

APR - Interest Rate
The APR is the reference to the interest rate the lender charges the borrower for the use of the money. You need to know a little about APR because it shows what the cost of the credit actually is. The cost of credit is more than just knowing the interest rate; it is important to be familiar with the annual percentage rate.

The APR is the cost of credit measured on a yearly basis and expresses a yearly rate. By comparing the APR of loans or credit cards etc you can work out which card is likely to cost you the most. You need to find out what the correct annual percentage rate being charged to you is so you can make decisions on your lending situation because it will affect the selection of credit cards or other loans you are looking at taking on.

Using the APR to your Advantage
If you carry a balance from month to month on your credit card and the card has a high APR, the only way to reduce the interest is to pay more each month. If you only pay the minimum amount, not only will it take you a long time to reduce your debt, but you will also pay more interest.

All the time you carry a balance on the card, the interest adds up. A credit card balance can actually increase considerably when you only make the minimum payments. This is because the balance on your card is left to accrue interest over time and so it just keeps growing. Check out what the APR is because the lower your APR, the lower the fees charged to you.

What's the Difference Between a Fixed and Variable Rate?

  • Fixed - A fixed interest rate means that the rate of finance charged does not change throughout the term of the loan. For example, you may take out a loan at 5% fixed for three years. This means that the interest rate will not change over that three-year period and will remain at that 5%.
  • Variable - A variable rate, however, is determined by an index such as the prime rate charged by banks. The variable rate allows the bank to charge an interest that more correctly reflects the current market conditions.

When shopping for a loan, make sure you understand clearly the difference between a fixed and a variable rate.


Copyright 2005 StartRunGrow
http://www.startrungrow.com

StartRunGrow (http://www.startrungrow.com) is a global online information organization that specializes in creating, developing and marketing business help information specifically with the aim of "making business easier" for entrepreneurs around the world. The StartRunGrow objective is to become a dominant player in the business help arena providing end to end solutions for the millions of small and medium businesses worldwide who continue to struggle daily with the difficulties of starting, running and growing a successful business.

limousine chicago service
In The News:

Credit Card Rates - Negotiating Rates with Your Credit Card Company

Ok, let's face it, everybody hates high credit card rates,... Read More

How To Save Money On Credit Cards

Some credit cards offer a cash advance option. But how... Read More

Inflexible Friends and Plastic Assets, Why Money isn?t Buying Love Anymore

Consumers reject financial advice in favour of financial frivolityIt would... Read More

3 Free Credit Reports For You

If you were to tell someone that they can have... Read More

14 Common Credit Mistakes

Establishing credit and wisely managing your credit becomes easier when... Read More

Fixing A Credit Report

Fixing a credit report starts with seeing what's on it.... Read More

Why Americans Find Predatory Lending Offensive

"Menis - the author translates as "indignant rage" - It... Read More

Credit Repair Kit Sound To Good To Be True? It Is.

A lot of people have bad credit. It is unfortunate... Read More

Taking Control of Your Credit History

Your credit history is important; in fact, in this day... Read More

Debit Card vs. Credit Card, What Are The Differences ?

Ah, the "good old days". If you are a baby... Read More

How to Get Credit Reporting Agencies to Help You

The process of clearing credit can be laborious and frustrating.... Read More

Choosing A New Credit Card

1. Choosing A new credit cardThere are many reasons for... Read More

Like It Or Not, You Have A Score To Settle!

Like It Or Not, You Have A Score To Settle!... Read More

The Things That UK Lenders Like to See on Your Credit File, (and? What They Don?t Like to See!)

Lenders are quite fussy about what they like to see... Read More

Understanding Your Credit Score

When you apply for credit one of the first things... Read More

Myths and Truth about Credit Scoring

Credit score is the key factor determining approval of almost... Read More

Credit Help for Real Estate Financing: Credit Scores

When you buy real estate, lenders run all of the... Read More

How To Boost Your Credit Score

Years ago your credit score was a big secret, known... Read More

What Happens When Your Credit Is Damaged? Do You Have Recourse?

The good thing about bad credit is that you can... Read More

Have You Ever Opened a Checking Account?

Maybe some of you are saving it in your trusty... Read More

What is Credit Counselling?

Ever wondered what is Credit Counselling? There are occasions when... Read More

Bank Robbery Growing In U.S.

Bank robbery has grown to become a huge problem in... Read More

Fair Isaac Corporation Credit or FICO Score

As I am not from the US, I had no... Read More

Identity Theft ? Additional Protection for Soldiers on Active Duty

Congress passed the Fair Credit Reporting Act several years ago... Read More

Repair Your Credit - The Right Way!

How to Repair a Bad Credit Rating?The Right Way!If you... Read More

parking led lights induction tunnel Pete's produce ..