What is an Interest Rate?
An interest rate is defined simply as “the cost of borrowing money, expressed as a percentage” (usually for one year). Beyond this simple definition, there are many factors that go into the actual details of an interest rate in a certain situation. There are a number of terms that a person should understand before borrowing money from a lender, and failing to grasp the intricacies of a loan or credit account can land the borrower in serious financial trouble.
While avoiding interest and debt-related problems is the best course of action, sometimes unforeseen events can cause financial woes. In such situations, bankruptcy may be the most rational option. The New Orleans bankruptcy attorneys of Kervin & Young can help determine the best plan for you.
Important Interest Rate Terms
Here are some terms commonly used when discussing interest rates.
- Fixed – The interest rate will remain constant for a set period of time.
- Variable – The interest rate can change over the duration of the loan (also known as “floating” or “adjustable”).
- Compound – Unpaid interest is added to the balance of the account. Basically, interest is charged on interest.
- Simple – Interest is only charged on the unpaid portion of the loan.
- Nominal – Price before adjustment for inflation
- Real – Nominal interest rate minus inflation
Understanding the terms of a loan is vitally important to staying out of financial trouble. If you have questions about the details of a contract, consult a legal professional.
Contact Us
If you are considering filing for bankruptcy due to money owed to lenders, you deserve to have an experienced guide help you explore your options. Contact us at 504-599-5906 and discuss your situation with the New Orleans bankruptcy lawyers of Kervin & Young, LLC.