Bank Image

The interest is usually described to you as the Annual Percentage Rate or APR. This is the percentage that the bank charges you for the privilege of borrowing its money. The APR can be charged in a number of different ways. Some accounts carry a Variable Rate, which is a rate that can change or vary. This is usually dependant upon another number called an index. One of the most common indexes used is the Prime Rate, which is an average of the best lending rates of the largest commercial banks. The interest rate given to consumers on their loans is often calculated as the prime rate plus a certain percentage. This percentage represents the lender's assessment of the risk involved in lending to you, plus its profit margin.

Another way interest can be charged is through a Fixed Rate. This rate is established at the beginning of the loan and does not change unless the terms of the loan are not followed, such as when you make a late payment or exceed your credit limit.