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Interest Rates and What They Mean For You

Interest rates can become very tricky when trying to understand them and how they work. There are many different types of interest rates with the different ways that they are charged. It is important to know and understand what type of interest you have and how you are being charged. Not knowing what type of interest to ask for or what type of interest that you already have can keep you in debts for many, many years. Below are the different types of interest and how they work.

Compound interest rates
Compound interest is interest that is charged on a daily basis. This type of interest rate keeps going and going. This is the type of interest rate that most consumers are on. The problem with this interest is that it is extremely hard when trying to find out how to pay off debt because most of the consumer’s minimum payments go towards the interest rates each month and not the principal balance. Most creditors offer this type of interest for obvious reasons. If at all possible steer clear of this type of interest rate.

Simple interest rates
Simple interest is only calculated towards the principal amount that is unpaid. This type of interest is basically the opposite of the compound interest rate, it is not charged on a daily basis and the debt can be paid in a most effective manner.

Fixed interest rates
If you have a fixed interest rate it is an interest rate that is basically locked in for the duration of the agreement. Fixed interest rates can be beneficial, but make sure that the agreement is read thoroughly. Some of these agreements may state that after a few months the rates will increase.

Introductory interest rates
This is an interest rate that is given in the beginning of the offer for the time stated on the agreement. It is very important not to get sucked into an agreement because the initial sign up looks great. After the introductory rate the rates go up and you will be shocked to see how much you now owe on top of your balance in interest rate fees.

Partially fixed interest rate
This is an interest rate that allows the consumer to pay partial interest on one part of the loan and variable interest on the other. This type of rate is given a guideline from the creditor.

Variable interest rate
A variable interest rate is just as it sounds; it varies depending on the changes in cash rate of other changes made by your provider. These interest rates basically flip flop at any given time due to the providers guidelines.

 

 

 

 

 

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