What are interest rates? Well, which one do you want to know about? Quick Loans Express helps you understand the many types of interest rates on the market.
What are Interest Rates?
When you’re looking to borrow money, interest rates can seem very complicated and confusing. However, it is imperative to understand how interest rates work before taking out any loan, such as a cash loan or mortgage. If you know what each one means, then you can compare the interest rates of different lenders. This is a great tool to help you find the best-priced payday loan or otherloan options.
Quick Loans Express is here to break down the terms and help you properly understand interest rates once and for all:
What are Interest Rates?
Interest is essentially the amount of money you pay to the lender on top of the amount you borrowed. Every lender applies an interest rate onto the money you borrow, and it often reflects your credit score. The better your credit score, the more likely that you will qualify for lower interest rates on a loan.
What is APR?
The Annual Percentage Rate or APR are the interest and fees you would accumulate on your loan if you borrowed money for a year. This is a basic and universal way of representing interest rates for all types of credit products, even if you borrow money for less time. Every lender and credit card company must show the representative APR for potential borrowers to see. However, the APR they advertise is often is better than the rate that they will offer people with a bad credit score.
A lower APR will mean smaller monthly loan repayments– and smaller loan repayments mean a cheaper loan! This is why it is important to know what to look for. Our representative APR is 997%; one of the lowest for small loans UK.
What is Compound Interest?
Compound interest is the exciting one because this one helps you grow your money while you sleep. Compound interest is the interest you accumulate on money in a savings account. For example, if you have £1000 and your saving account offers you 5% yearly compound interest, then after one year you will have £1050. If you still have the same amount of money the next year, your account will amass another 5% of £1050 which is £1102.50. You can continue amassing compound interest throughout your life and increase your earnings exponentially.
What are Fixed Interest Rates?
The word fixed should come to mind! A fixed interest rate does not change over the course of the repayment period. Rather, as you pay off the borrowed amount, your monthly payment will decrease. This is because the smaller the outstanding amount is, the smaller the total amount of interest is. A fixed interest rate is typically associated with borrowing money for a mortgage.
Why is a Fixed Interest Rate Useful?
If you take a loan for £200 with a 10% fixed interest rate, the total amount of interest you’ll have to pay is £20. If you split up that repayment over 2 months, you’ll pay £10 interest a month. Fixed interest can help you budget better since you know exactly how much money you will need to pay that month. So whatever your wage, you know that the fixed interest mortgage payment will be the same every month. It allows stability when it comes to maintaining repayments even if the economic climate changes.
What are Variable Interest Rates?
Variable interest is slightly more complicated as the interest rates fluctuate and change according to different factors. Variable interest rates are affected by economic changes and international rates. This can be very unpredictable, but can also be beneficial.
Why are Variable Rates Appealing?
Some people like the option of instant payday loans from direct lenders or other loans with variable rates. This is because they may benefit from times when there is a drop in interest rates.
An End Note
Now that we’ve broken down the types interest rates, we hope you have a clearer understanding of what each means. When taking out any loan, make sure you know what type of interest rate the lender is offering you so you can compare with different lenders and make an informed choice.