This is where your finance takes place

There are many different words and terms that are used to describe different aspects of personal finance. Not all of them, however, are commonly understood. It is important that people understand exactly what these terms mean, to make sure that they make the most of their hard earned money. This article will explain a number of terms that we come across nearly every day, but may not be sure what exactly they mean:

APR – or Annual Percentage Rate

APR is most frequently seen as a number on credit cards, loans and mortgages, and it represents the amount of interest that you will be charged on the balance of credit over the course of the year. It is generally thought that the lower the APR the better the deal as this will mean having to pay less interest. In basic terms, this is often true, but many financial products have differing APRs throughout their lives, especially mortgages. Often you can get a fixed rate mortgage, which then switches to a variable or tracker rate after the fixed rate period expires. It is important that you understand what the best deal is in the long term before making a mortgage application.

Another thing to look out for is credit card introductory offers. Many providers offer a 0% bonus rate for an introductory period – usually either 0% on balance transfers or 0% on purchases for a limited time. Once this time is up, they then charge interest at a rate of around 15%. If you’ve got a credit history, then it is possible to get cards with typical APRs lower than 10%, such as with Capital One.

Interest and Interest Rates

Interest is one of the most common financial terms. APR is a type of interest rate, a rate that your lender will charge you for credit. Meanwhile, there is also AER, which is the rate of interest that your lender will give you for being in credit. The best AERs are normally found on savings accounts, or ISAs, which are also tax free.

The Interest Rate is the percentage of your own funds, or of the amount you borrowed that you either have to pay to a lender, or that you recoup from the bank. The higher the interest rate on a current account, the more money you will gain from it, the higher the interest rate on a loan, the more you will owe to the lender.

For some of the competitive interest rates for loans and savings in the UK, take a look at Alliance and Leicester.

Capital

Capital is the amount of money, or the amount of debt that you began with, before extra complications such as interest are added. The amount of money that you owe on a loan is your original borrowing (the capital) plus a certain percentage of that original sum (the Interest rate).

The general rule is that when it’s your own money you’re looking for the highest Interest Rates in order to make the most money, when it’s someone else’s money that you have, or are, borrowing, you want the lowest Interest Rates and APR so that you end up paying as little as possible.