In simple terms, the cost of borrowing money is known as interest. Therefore, when you take out a loan, the money you pay back in addition to the initial amount you lent, is the interest.
Interest rates are generally expressed as a percentage of the initial loan and can differ depending on the lender, the amount you borrow, and the agreed term (agreed length of time to repay the loan).
Consumers posing higher credit risks may end up paying higher interest rates on loans due the nature of the risk to the lender.
Fixed vs Variable Interest rates
Interest rates can be fixed, where the rate remains constant throughout the term of the loan, or variable, where the rate can fluctuate based on a reference rate.
Loan agreements should always explain the rate of interest, and whether it is fixed, or variable.
With some lenders you will accrue interest each day you have your loan, as well as each day your repayment is overdue – plus any additional charges. This can make it difficult to get a handle on how much you owe.
With a loan from Firth Finance, we offer a fixed interest rate which is calculated up front and will not change.
APR vs Interest Rate
When evaluating the cost of a loan or line of credit, it is important to understand the difference between the advertised interest rate and the annual percentage rate (APR).
APR is the annual cost of a loan to a borrower — including fees. Like an interest rate, the APR is expressed as a percentage.
It is worth noting that an APR assumes a loan term of 52 weeks (one year), so if your loan is for a shorter term it is worth looking at additional features as a basis for comparison, such as any additional fees, late payment charges, and repayment options.
APR means, in short, how much your loan will cost you over the course of a year, taking into account what your interest rate is, how often you pay interest, and what fees are associated with the loan.
About Firth Finance
For over 50 years our team has worked throughout Belfast and Northern Ireland to offer our competitive loans with fixed rates of interest and no hidden fees or late payment charges.
Today, we are the financial provider of choice for our many happy customers.