For example, in the case of a monthly payment with a 6% annual rate, the periodic interest rate is equal to 6% / 12 = 0.5%. To get the periodic interest rate, you need to divide the annual rate by the number of payments in a year. For example, a bank might charge 2% per month on its credit card loans, or it might charge 1% quarterly on loans. It can be annual (in this case, it equals the annual rate), semiannual, per quarter, per month, per day, or per any other time interval. Periodic rate: this is the interest rate charged by a lender or paid by a borrower in each payment period. Payment period: it refers to the specific period over which the borrower is obliged to make the loan payments. For example, a 20-year fixed-rate mortgage has a term of 20 years mortgage calculator. Payment term: in our context, refers to the time frame the loan will last if you only make the required minimum payments each month. To learn more about inflation, visit our inflation calculator. It is also important to take into account the expected inflation rate when you inspect a quoted rate: the higher the inflation rate, the lower the real interest rate thus, the real burden generated by the interest rate lessens. If you would like to learn more about calculating interest, visit our simple interest calculator.Īnnual rate: this is the interest rate (also called nominal rate or quoted rate) that is quoted by banks (or other parties). In other words, this is the amount that the borrower agrees to pay the lender when the loan becomes due, not including interest. Loan amount: this is the amount of money (also known as the principal) that a bank (or any other financial institution) lends or, conversely, that an individual borrows. In the following, you can get familiar with these phrases so you will have more of an understanding of the concept of loans. Before we go any further, it is essential to discuss a few specific terms you may encounter when you are considering taking a loan.
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