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Calculating Compound Interest And The Use Of APR Calculator One of the most asked questions by clients visiting a credit counselor is the explanation of annual percentage rate, the APR, and how to calculate the same, but APR is simply defined as the amount that one pays as interest on loans or credit cards. Most of the individuals seeking help from the credit counselors have been paying loans either to pay for a car they acquired on loan or to pay for mortgage in case they acquired their home through a mortgage loan but not everyone understands the calculations that lead to the figures they are paying monthly. APR on a credit card is used to determine the amount that one has to pay monthly to the lender to cover minimum charges and also the interest that the credit card attracts. The total amount that one has to pays to the institutions depend on their outstanding balance one pay off each month and if one made minimum payments or additional payments to clear the balance. It is also worth noting that amount arrived at using APR does not imply the amount that one should pay the monthly bill but rather the interest while each credit card has unique charges depending on the lending institution. In most countries the lenders are required to disclose their lending rates in standard form to avoid customer over exploitation by the lending institutions. To calculate APR, the rate of a payment period is usually multiplied by number of payments annually. Using an example of 9.5 percent APR it is divided by 12 which gives 0.79 percent monthly interest rate on one’s outstanding balance. Using an example of an individual who took 10000 as the loan amount in the lending institution, they are required to pay 79 per month as the interest charges. If one has not cleared their previous months charges, they may lead to an increase in the amount is required to pay especially in cases of compound interest. The rates of a loan agreement are not the only considerations before signing loan agreement as one also needs to inquire about the mode of payments as well as the length of loan repayment. One also needs to verify the additional fees associated with the loan such as payment protection insurance as they also have an effect on the compound interest. Lending institutions are required to present the facts and figures to their clients before they sign the loan agreement to allow them to make informed decisions. One also needs to determine whether the APR is fixed or variable where with variable they pay amounts of money in increasing or decreasing order while for fixed rates the amount remains constant. Compounding interests are not only used by lenders, but they are also used by investors when they are returns from an investment.Resources – My Most Valuable Tips

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