Lesson 50 of personal finance

Interest rates is the topic for this week’s essay and why interest rates are different for different kinds of loans. Interest, for the person loaning the money, is conception for giving up the use of the money for a while so someone else can use it. Interest is the payment of time and it increases for the amount of time you have that money. Interest comes with a few risks such as the lender giving up the money when they could have done something productive with it.  The possibility of the money not being worth the same amount because of inflation is another risk. Also  the lender is not getting their money back(default risk). A few ways to reduce default risk are to check and see if the loaner has a good reputation of paying back loans. Check the person loaning the money’s credit score. If the loaners credit score is high they have more of a possibility to pay back the loan.. When lending or loaning something to someone you would want them to have a high possibility to give it back. Sometimes when the loan isn’t paid on time the lender is able to take a valuable possession from the loaner as collateral. While others may sue the loaner for failure to pay. Credit card rates are higher than car loan rates because of the non-collateral. When a loan for a car is taken out and failed to pay, the lender will most likely take the loaners car as collateral. When it comes to credit card rates they are much higher due to the fact that they do have anything to get collateral on. The simple way to calculate interest is I=PRT which means interest equals principal times the rate times the amount of time the loaner is to have the money.

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