When you borrow money through credit cards or personal loans, the amount you pay back is determined by the interest rate. Interest rates can also be applied to savings and investments, but you earn interest instead.
Understanding interest rates will enable you to make better financial decisions and gain control over how your money works for you. This guide delves into the following topics:
(a) What exactly is an interest rate?
(b) Investor interest rates
(c) Interest that is compounded
(d) Borrower interest rates
What exactly is an interest rate?
Borrowers’ interest rate is the cost of borrowing money, which is often expressed as a percentage of the total amount borrowed and often includes admin fees.
If you borrowed 1,000 dollars at 10% interest, your total repayment to the lender would be 1,100 dollars.
The interest rate is the amount of money that a financial institution is willing to pay you in exchange for borrowing your money. Interest is the profit on savings. For example, if you deposit 1,000 dollars into a savings account with a 2% annual interest rate, you will have 1,020 dollars after one year.
Investor interest rates
There are several ways to earn interest on your money such as savings accounts, bonds, or peer-to-peer (P2P) investments. You can look for earning opportunities that fit the length of your investment and your risk profile.
High-interest investments frequently involve a higher level of risk, but the payoff can be up to ten times the interest rate of the average savings account. In 2019, the average interest rate on savings accounts is around 1% to 2% while a peer-to-peer investment typically yields around 5% in interest.
When you invest in Hap2py Penny peer-to-peer loans, you can earn a high return. Use our investment platform to see how much money you could make. Make sure you investigate the various investment options and are aware of the risks associated with high-interest opportunities. Find investments that fit your financial objectives.
Interest that is compounded
When it comes to investing, time is money. You can earn interest on your interest over time. This is referred to as compound interest. Compound interest is calculated by adding interest to an already charged loan or savings account. This means that any additional interest charged or earned in previous periods has also been applied.
Returning to our earlier example, if you put 1,000 dollars into a 2% savings account and earned 1,020 dollars after one year, you would continue the 2% interest rate on 1,020 dollars the following year. Over five years, your earnings would look like this:
| First Year: | 1,020 dollars |
| Second Year: | 1,041 dollars |
| Third Year: | 1,062 dollars |
| Fourth Year: | 1,083 dollars |
| Fifth Year: | 1,105 dollars |
Borrower interest rates
The average annual percentage rate (APR) on a personal loan is around 8% for 5,000 dollars and 3.9% for 10,000 dollars. An overdraft has an APR of 19.72% on average and credit card usage could reach an all-time high of 24.9%.
If you are paying too much on high-interest debt, consider refinancing with a low-interest credit provider to help you pay it off. Peer-to-peer loans can offer comparatively low-interest rates as the process is entirely online. Because the overheads are kept to a minimum, the savings are passed on to the borrower.
Hap2py Penny can offer loans starting at a lower rate based on your credit history and the terms you choose. Use our service to determine how much interest you could save by refinancing with a P2P loan.
