HOW INTEREST RATES WORK (AS REPORTED BY LUCY LAZARONY ON WWW.CREDIT.COM)

Credit is an important part of an individual’s financial life. As Americans, we use it to finance all of our larger purchases, and some of our smaller ones. Whether you’re talking about everyday credit card purchases, a mortgage, or car loan, one of the most important aspects to consider is the interest rate.

Interest rates tell you how much you are going to have to pay to use the credit. And they work in different ways, depending on which of the above purchases you’re talking about. For example, auto loans use simple interest rates applied to the principal of a loan, while mortgages mostly bundle their fees into the interest rate the calculate an APR (annual percentage rate).

Read this article for a full breakdown of different interest rates and how they work.

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