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Why You Need To Calculate APR Rates Before Signing A Loan Agreement When clients seek services of a credit counselor one of the often asked questions is the explanation of APR and the how one can come up with the figure, but APR or annual percentage rate is the amount that one pays an interest on loans from a lending institution or when they use credit cards. Most of the clients find themselves in a debt situation when they acquire cars on loan or mortgage, but most of them fail to understand how the amount arrived at as interest charges were calculated. The APR on a credit card determines the amount that one has to pay to the lender to cover minimum charges and the interest on the credit card. The amount of money one pays at the end of a particular month also depends on whether one has been paying the minimum payments or they have been paying additional charges to reduce their outstanding balance. Figures arrived at using the APR does not imply one’s monthly bill for a specific month but the interest that one pays while each credit card has specific charges depending on the lending institution. There are set regulations which control the APR rates charged by different lending institutions which aim at protecting customers from over-exploitation. To calculate APR, the rate of a payment period is usually multiplied by number of payments annually. Taking an example of a lending institution which has set its APR rate as 9.5 percent, it means one is charged 0.79 percent monthly on the outstanding balance, figure arrived at by dividing 9.5 with 12 which is the number of months per year. If one took a loan of 10000, using the set rate of 9.5 percent they are required to pay 79 per month. If one has not cleared their previous months charges, they may lead to an increase in the amount is required to pay especially in cases of compound interest. The rates of a loan agreement are not the only considerations before signing loan agreement as one also needs to inquire about the mode of payments as well as the length of loan repayment. It is also vital that one discusses the additional fees such as payment protection insurance before signing the agreement. Lending institutions are required to present the facts and figures to their clients before they sign the loan agreement to allow them to make informed decisions. Compound interests may be fixed or variable where one pays the same amount of money throughout the repayment period while with variable rates the amount may increase or decrease. Compounding interests are not only used by lenders, but they are also used by investors when they are returns from an investment.3 Lessons Learned: Finances

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