Interest rates are the cost of borrowing money, expressed as a percentage of the amount borrowed. When you borrow money, you generally must pay back the original amount you borrowed, plus a certain percentage of the loan amount as interest. Interest rates can also refer to the amount of ownership a stockholder has in a company, usually expressed as a percentage. Here are some key points about interest rates:
- Interest rates vary according to the governments directives to the central bank to accomplish the governments goals, the currency of the principal sum lent or borrowed, and other factors.
- The nominal interest rate is the rate of interest with no adjustment for inflation.
- An Annual Percentage Rate (APR) is another rate that you may come across when borrowing money. An APR is your interest rate for an entire year, rather than just a monthly fee or rate, on your credit cards or loans, plus any costs or fees associated with the loan. Its the total cost of having the credit card or loan, stated as a percentage.
- Interest rates can be applied to various financial products including mortgages, credit cards, car loans, and personal loans.
- The Bank of England (BoE) sets the bank rate (or ‘base rate’) for the UK.
- Interest is calculated by multiplying the outstanding principal by the interest rate.
Its important to shop around for interest rates before committing to a loan or other financial product.
