Previous | Work-from-home scams and how to avoid them Next | Turning your hobby into a source of income
September 24, 2020 / David Bimler
Interest Rates 101

Interest Rates 101

If you’ve been researching loans, you’ve certainly noticed the term interest rate.

What Are Interest Rates?

Expressed as a percentage, usually, in annual terms, an interest rate is the amount of money your lender charges you for a loan.

Nearly every type of loan, including mortgages, car loans and student loans, charges an interest rate. Rates vary depending on your credit score, the type of loan and the lender.

With a loan, the amount to be repaid is typically more than the amount borrowed. And the difference between the original loan, and the amount to be repaid, is the interest charged. The interest charged is applied to the principal amount.

How Is Interest Applied?

Interest is applied as either a variable rate or a fixed rate. Variable rates fluctuate over time in response to changes in the market; fixed rates stay the same for the entire term of the loan.

Higher interest rates make loans more expensive, while lower interest rates make loans cheaper. Therefore, it’s smart to seek out the lowest interest rate.

When repaying a loan, you’ll likely make monthly payments. Your monthly payment comprises a portion of the balance on the loan, as well as any interest that’s due. The interest rate applies to the outstanding balance of the loan.

For instance, if you take out a $20,000 loan, with a 10 percent interest rate, you’ll initially owe 10 percent interest on the $20,000. However, if you pay the outstanding loan amount, you’ll only pay interest on the leftover amount you still owe.

With fixed-rate loans, your monthly payment will always remain the same. When the monthly payment begins, the portion of your payment used to pay interest will be larger. At the end of the loan term, however, a larger portion of your payment will go toward the principal amount.

David Bimler is vice president, residential mortgage/consumer lending sales manager at F&M Trust.

Recent Articles
Turning your hobby into a source of income
Turning your hobby into a source of income

Turning your hobby into a source of income

June 12, 2024 / Kia Treml

Is it time to sell your home?
Is it time to sell your home?

Is it time to sell your home?

June 05, 2024 / Katie Rittel

Seven tips to help you save for vacation
Seven tips to help you save for vacation

Seven tips to help you save for vacation

May 17, 2024 / Megan Witmer

Gig economy offers workers independence
Gig economy offers workers independence

Gig economy offers workers independence

May 14, 2024 / Shelby Yinger

Budgeting for home improvements
Budgeting for home improvements

Budgeting for home improvements

May 09, 2024 / Jenny Madden

What to know when starting a small business
What to know when starting a small business

What to know when starting a small business

May 06, 2024 / Natasha Koons

Tips for first-time credit card holders
Tips for first-time credit card holders

Tips for first-time credit card holders

April 23, 2024 / Chastity Wantz

What information do I need for my mortgage application?
What information do I need for my mortgage application?

What information do I need for my mortgage application?

April 17, 2024 / Mary Wright

How do I handle high inflation?
How do I handle high inflation?

How do I handle high inflation?

April 11, 2024 / Megan Brindle

Join our e-newsletter

Sign up for our e-newsletter to get new content each month.

NOTICE: YOU ARE LEAVING F&M TRUST!

You are now leaving the F&M Trust website. Links to third-party sites are provided for your convenience. Such sites are not within our control and may not follow the same privacy, security or accessibility standards as ours. F&M Trust neither endorses nor guarantees offerings of the third-party providers, nor is F&M Trust responsible for the security, content or availability of third-party sites, their partners or advertisers.