What is Interest?

When dealing with financial matters, you’ll find that there are a lot of different elements that will create a bigger picture to what you’re doing. That is something very true when it comes to dealing with what is simply known as interest rates. For those that are unfamiliar with how interest works, it can be a complexity and issue that will either stifle your buying power or help create a long lasting relationship with a number of lenders. If you’re interested in purchasing any large ticket item, or you are looking to save money in a high yield savings or checking account, you’ll see this financial term thrown around for a variety of reasons. Exploring the different reasons can help with establishing an overall good future for yourself and your family.

Loans – The first major issue that you’ll find is in regards to borrowing money. There are few places that you can get any sort of advance on credit without paying a fee for that use. You’ll find that credit cards, banks, and other institutions will charge upwards of 30% to 300% depending on the lender. This is so that the business makes money while you’re using the boost to your overall economic future. This may seem like a difficult thing to ascertain, but it is really simple. Let’s say that you want to use $1,000 from a bank to purchase a car. They will front the money to you, but you’ll have to pay it back with an added fee for an extended period of time. Let’s say you had to deal with 10% in this fee, than you would pay $1,100 for the privilege to borrow money. This can be extended across several years and monthly payments will get lower. A good credit score will help reduce the rate dramatically.

Making Money – For those that are looking to earn money on their finances, many institutions offer interest in the form of a tip or a reward for using their services. Whether you look into a checking account, CD account, or even a savings option, you will be able to earn on the money that you put in. This could be a very small amount and could increase depending on how much you have in and what type of service you are opening up. This often times doesn’t exactly earn a great deal, but little incremental interest is still a good thing to look into.

All types of lending usually has a certain amount of fees that are attached to the money borrowed. Even if you were to find 0% APR or something of that nature, it will usually only be for a limited time. Make sure that no matter what, you look into the fine print of any sort of economic decision that you make that could have you paying extra for the opportunity to utilize additional funding to purchase cars, homes, or anything else that you can’t pay up front and out of pocket. This will help you stay away from issues and hardships in the long term.

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