When it comes to interest rates, you’ve probably been told to take a loan with a low rate, and you’ve probably been told to open a savings account with a high interest rate. And while that’s great advice, it seems like no one can tell you the magic number that is a good interest rate. Don’t worry, we’ve got you covered.
Here’s Five Fast Facts on Interest Rates:
- 💵 That’s Interesting - An interest rate, in simple terms, is just the amount a borrower is charged by the lender. It’s usually the percentage of the amount loaned. You’ll usually see it referred to as the annual percentage rate (APR).
- 📊 Where to? - For those loans, the interest rate is applied to the amount of the loan (aka the principal). The interest rate reflects the cost of your debt and the lender’s rate of return. That’s why your loan is usually higher than the price since lenders want to make up for what they’re losing during the loan.
- 📉 Low Can Also Be High - Yes, a 1% APR can save you money over time, but your total cost to borrow will be higher. For example, a mortgage will require additional monthly mortgage insurance payments and those ain't cheap.
- 📈 But Wait! - An interest rate also applies to the amount you earn from a savings account at a bank or credit union, or from a certificate of deposit (CD). Here, you’re looking for a larger annual percentage yield (APY) for interest you earn on the account.
- 🪄 Magic Numbers - The average APR for a two-year personal loan is 9.45%. That’s on the high side of things. If your credit is superhumanly good and you don’t have a lot of debt, you can snag one as low as 2.49%.
🔥Bottom line: If you’re thinking financial institutions make things like interest rates purposely complicated, you’re probably right. But a little research and a lot of communication with a financial expert can go a long way. Know what you’re after before you sign those loan papers.
What do you think about interest rates?
Let us know by connecting with us on Facebook and Instagram! Also, remember to share this newsletter with your friends & coworkers!
Btw, If you’ve read this far and haven’t yet signed up for the weekly Paycheckology newsletter, CLICK HERE!
