The annual rate of interest on the loan, expressed as a percentage of 100.
Interest rates are how lenders make money on your student, car, home or personal loan. The interest rate that you are charged is basically how much it is going to cost you to borrow money from a lender.
Interest rates vary on loans, so before you get a loan or mortgage, you should become familiar with the different loan products and what their corresponding interest rates mean for your finances. Some lenders offer loans at fixed interest rates, which means that the interest rate is set at the beginning of the loan and remains the same until the end. Adjustable rate loans, on the other hand, have interest rates which are reset periodically, based on current rates and the market index that they are tied to.
You may be wondering how interest rates are set and what you can do to avoid paying more than you have to. While some of the factors that determine your interest rate, like decisions from the Federal Reserve, are out of your control, there are some things you can do to keep your interest rate as low as possible. Your credit score shows potential lenders and creditors how creditworthy you are, so by paying your bills on time, managing your debt and not opening unnecessary accounts, you can help ensure you get a lender’s best rate. Remember, one of the ways that lenders offset the risk of lending to borrowers with low credit scores is by increasing interest rates, so be diligent about managing and monitoring your credit.
July 10, 2006
