Interest rates play a significant role in the cost of borrowing money. When you take out a loan, you agree to pay back the borrowed amount plus interest over a specific period. Understanding the basics of loan interest rates is crucial for making informed financial decisions.
Interest rates can be fixed or variable. Fixed rates remain constant throughout the loan term, while variable rates can change periodically based on market conditions.
The annual percentage rate (APR) represents the true cost of borrowing, as it includes both the interest rate and any associated fees.
Comparing loan offers with different interest rates and APRs can help you find the most cost-effective borrowing option.