What is APR, APY & Interest?

APR, APY, and Interest, being the part of banking and finance industry plays very important role. Consumers should know about these terms because if consumers are unaware of them then these terms affect badly. To save oneself from any fraud or mishandling of funds, consumer should completely understand how much amount they are paying to their creditors on the borrowed funds. The complete knowledge and understanding of industry terms will beneficial for the consumer and it will help the consumer to carefully handle the funds and make wise decisions. An old adage sits best for financial problems as well is “knowledge is power”. Following are the details of APR, APY, and interest that are charged on the average consumer.

Interest

Interest is the amount that a borrower has to pay on payments when money is borrowed by loan or through a credit card. Interest increases the total amount that is owed by the borrower over a certain period of time. Interest rates are set by lenders and it is the some percentage of the actual amount that the borrowers borrows from the lender and agreed to pay. Interest is also the amount of money that we get on our savings, shares, or any other financial funds. If we keep our money in a saving account then the financial institution that is holding our money invest our funds in certain business and give us some amount of the revenue that is generated from the investment of our funds.

Annual Percentage Rate (APR)

APR or annual percentage rate plays important role while taking a credit card or any other type of financing. APR can directly affect the amount of money that you have in your account or that you spend from your account. APR is actually the amount that your have to pay annually in the form of interest. Credit comes with certain charges that you must have to pay off on time; otherwise you have to pay certain penalty on late payments. These charges can lead you to pay more than that amount you were initially owed. APR may vary also like interest rates and to deal with it search the market carefully and select the lowest APR to make wise financial decisions.

APY

APY is an important financial tool that determines how much earnings can be generated from the deposit. A consumer can compare the investments by this standard method. APY is actually the amount that you will get on the deposit yearly. Always search for the financial institution that will give you high APY because you will earn it. It is beneficial because it is yours earning over other earnings and called as compounding. It is the original amount that you collect in interest on your money deposits.