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Why Interest Rates Matter

Why interest rates matter

The interest rate is the “cost” of borrowing money. It works like this: If someone loans you $100 at a 10% interest rate, in a year you will owe that person $110.

Pretty simple, right? No matter what kind of loan you have you should know the interest rate. It is the price of credit. If the interest rate isn’t clear on your bill, ask the lender what it is. For example, some payday loans actually have an annual interest rate of more than 400%!

Often if you pay late or miss payments, your interest rate will increase and you will pay fees. A higher interest rate could mean paying hundreds of dollars more on your debt.

To see what the APR means to you, check out the EverydayMoney Credit Card Tool.

Credit card interest rates

If you are carrying debt on credit cards, you should shop for cards with the best rates and features. If you get offers for very low rate credit cards, make sure to check how long the rate is valid for and what the rate will be after the introductory period.

Remember, credit card companies want to make money from lending you money. So check the fine print and make sure you understand the terms. For more on this, check out Balance Transfer.

If you need help reading your credit card bill, check out the EverydayMoney Interactive Credit Card Bill.