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What is an annual interest rate?

April 26, 2017annual credit Finance Interest rate Loans rates

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What is an annual interest rate?

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An annual interest rate is the cost to borrow money expressed as a yearly percentage. The annual percentage rate also includes any fees or costs associated with the transaction according to the website Investopedia.FeaturesIf your interest rate is 2 percent per month it is the same as an annual interest rate of 24 percent. Credit card companies are required to disclose the annual percentage rate.FunctionYou can calculate the amount of interest earned for an entire year, using the annual interest rate if you have the balance and the interest rate. If the annual interest rate is 15 percent and you have a balance of $1,750 the amount of interest for the entire year will be $262.50, ($1,750 x .15).Expert InsightIf you know the amount of interest you were charged for a full year and you have the balance you can determine the annual interest rate. Take the amount of the interest and divide it by the original balance, ($262.50/$1,750 = 15 percent).EffectsThe amount of finance charges you accu