Interest Rates

Knowing the Annual Percentage rate can help you compare and choose the best loan deal.

Interest is the money that you pay to a lender to borrow money. For example, let's say you borrow $100 and agree to pay back $120. That's $20 extra you're paying the lender. This extra amount is the loan's interest, which is expressed as a percentage of the amount borrowed. In this example, the percentage rate is 20%. However, to really understand the cost of borrowing money, you also need to know the period of time over which the rate is calculated. Most interest rates are calculated for a period of one year, which is expressed as the loan's Annual Percentage Rate or APR.

Key take aways:

Interest is the money you pay to a lender to borrow money.

Some types of high-interest loans, such as rent-to-own plans, may not have a stated APR nor even be presented as loans.

APR provides a common standard to help you compare interest rates.

If you don't see the APR, ask for it.

Want some help doing the calculations yourself?

Use our APR calculator below. The fields have been pre-populated with values from the example in the video, but feel free to change them.

• Cash Price ($)
• Payment ($)
• Per Month Bi-Weekly Week
• Loan Period 3 months(12 weeks) 6 months(24 weeks) 12 months(52 weeks) 18 months(76 weeks) 24 months(104 weeks)

Financial Readiness Videos

• • Dealing With Debt
• • Interest Rates
• • Traditional vs Roth
• • Identity Theft and Scams
• • Your Credit Score
• • Investing Basics

Additional Resources

• • Additional Online Resources