What Is An Interest Rate?

 

Nowadays, much of the economy is based upon the concept of making profit by loaning money to other people.  This profit comes in the form of interest.  Interest on a sum of money is determined by establishing a rate of interest.

 

You may be wondering, “What is an interest rate?”

 

An interest rate is the percentage of an amount of money charged for its use.  This rate can vary widely depending on what purpose the money is being lent out and by whom.  For example, a person buying a home can get a mortgage loan with an interest rate around 3 ½ percent; however, someone who is applying for a credit card may find their rate of interest charged to them every time they make a purchase to be upwards of 20 percent.

 

There are two general types of interest rates.  There is a fixed rate and a variable rate.  The fixed rate is set at a certain amount and does not change during the period of the loan (unless the debtor defaults on the loan).  The variable interest rate can change while the loan is being repaid.  Some interest rates are tied to fluctuating global financial markets and increase or decrease as the market changes.  Other variable interest rates will change based upon a predetermined schedule.

 

An example of what is an interest rate and how it works can be seen by assuming you borrowed a thousand dollars from your bank and agreed to pay it back over a year’s period of time.  The bank agrees to loan you the money and charges you an annual interest rate of 10%.  Ten percent of one thousand dollars is one hundred dollars.  This one hundred bucks is bank’s return, or profit, for loaning you the money, and your total loan would be $1,100 and your monthly payments would be $91.66.

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3 Tips For First Time Car Buyers

  1. Calculate a realistic budget. To calculate your budget, subtract your calculated monthly expenses from your income after withholdings have been taken out (net income). Be accurate yet liberal when calculating these expenses: you probably spend more than you think you do. It can help to save all of your receipts for a several months and use receipts to calculate your average monthly expenditures. What money remains after you subtract expenses from net income is roughly the money you have available for the car loan in Toronto, the car insurance, mechanical maintenance, and petrol. But, better to be conservative and cut this figure by a fourth to a half than to end up with a loan you may default on. This is one of the most important tips for first time car buyers.
  2. Know your needs from your wants. Yes, you may want a convertible or the newest and shiniest vehicle on the lot: the one with all the frills and gizmos and satellite radio and seat warmers. Do you need that? Probably not. Can you afford it? Refer to your budget! Regardless, you should prioritize your needs over your wants. Your needs are determined by what you will be regularly transporting and in what kind of anticipated weather and road conditions and over what distances. That being said, if there are a few “wants” that stand pretty high on your list of what constitutes vehicular satisfaction, it can be better to spend a little extra money now to get a car that satisfies you than to have to go through the car buying process again months down the road because your car just doesn’t do enough for you.
  3. Research your car options. This is easy to do online. Find consumer reviews and professionals’ reviews of the makes and models you’re interested in. Look into the Kelley Blue Book to find out about the longevity of the resale value of the car you’re looking at and to find out what resale prices are realistic if you’re looking to buy a used car.  Before you go to a dealership, know what makes, models, and years you want to look at, and what they’re worth. The more informed you are, the better choice you can make. Let Loan Doctor Toronto help you with your next car purchase today! We will find you a quality used car, and car financing in Scarborough!