Ask Ash Cash: What are Compound Interest and APR?
AllHipHop.com’s resident Daily Word guru and all-around inspirational guy, Ash Cash, is back with his latest installment of “Ask Ash Cash.”
Watch the video below his response, as he offers more sound advice to readers:
Greetings my good folks! Welcome to another addition of Ask Ash Cash, where we go in the streets and answer all of your finance and business questions. Remember you can send your video questions to Questions@AskAshCash.com or via Twitter (@IamAshCash - use hashtag #AskAshCash).
Dear Ash Cash: What are Compound Interest, Interest and APR? -Dee (Brooklyn, NY)
Peace, Dee. Thanks for the questions. Interest, Compound Interest, and APR and all important terms to know as it relates to savings and loans.
Interest has three different meanings, but we'll concentrate on two. First, it's the fee charged by a lender to a borrower to use their money. It's usually expressed as an annual percentage of the amount borrowed, or the principal, as it is called in banking. The rate depends on many variables, but in most cases, the better your credit score, the lower the rate. The second definition is the return earned on an investment. If you invest your money and get any type of return that return is called interest, which is also expressed as an annual percentage.
Compound Interest in simple terms is earning interest on your interest. Compound interest is not only calculated on the initial principal, but also the accumulated interest of prior periods. It's different from simple interest, because simple interest is calculated only as a percentage of your total principal.
APR, which stands for Annual Percentage Rate, is simply your interest rate expressed in Annual terms or "How much does it cost you to have your loan per year?"