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:

Online Credit Report and Online Credit Reports

Online credit reports are easily accessible to those interested in... Read More

How Can A Qualified Mortgage Consultant Help Boost Your Credit Scores?

Consumers interested in purchasing or refinancing a home will pay... Read More

Is it Safe to Use Online Car Finance?

Online car finance is convenient. You can apply over the... Read More

Triple AAA in 30 Days

Have you ever wonder about how to get good credit... Read More

It Takes Credit To Build Credit

Using a credit card wisely is an important step in... Read More

A Debt Mentality

While working through my own debt situation, and helping others... Read More

Commercial Collections: Business Finance Booster Shot

Commercial collections: fixture of the new B2B cultureIf you're in... Read More

Which Citi Mastercard Is Right For You?

You've decided to apply for a Citi MasterCard, but with... Read More

Negotiating Rates with Your Credit Card Company

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

The Credit Card Surprise That You Need to Look Out For

Companies that issue credit cards want to make a profit.... Read More

Your Guide On Choosing a Credit Card To Suit You

Reach into your wallet or purse, pull out a card,... Read More

Credit Cards - The Basics

How Lenders Operate ? And How They'll Make a Tidy... Read More

Credit Cards: What is the Universal Default Clause?

Most people who carry major credit cards are well aware... Read More

How Your Credit History Can Affect Your Life

Your credit history is an important aspect of your life.... Read More

The Next Person With Credit Problems Got Their First Credit Card Today!

One of the focus areas of my information is the... Read More

Its Your Credit - Take Care of It!

Thanks to the Fair and Accurate Credit Act, American consumers... Read More

Can You Acquire Good Credit Overnight? You Bet

Your credit file may not reflect all your credit accounts.... Read More

Small Business Credit Cards

So what do you look for when applying for a... Read More

Practical Suggestions for Protecting Yourself From Identity Theft

It's no surprise that thousands of Americans are victimized by... Read More

What is a Credit Report?

Ever wondered what is a credit report? If you've ever... Read More

Repairing Your Credit Score and Clearing Derogatory Marks on Your Credit Report

Raising your credit score can be a fairly simple and... Read More

Finding What is on Your Credit Report

A credit report is basically a file about you kept... Read More

What You Need to Know About Credit Reports

You hear people talk about credit reports all the time... Read More

How To Get Out Of Credit Card Debt

If you're like the average person, let me warn you... Read More

Beginners Guide to Credit

I remember back when I was 18 and completely oblivious... Read More

new led light bulbs walkway lighting Pete's produce ..