When you are applying for credit or loans, you may hear or see the terms “Interest” and “APR”. The two terms have similar meanings and often get confused. It is important that you understand the difference, so you can make the right decisions when it comes to applying for credit.
What is interest?
Interest is the amount you pay back in addition to the loan or credit amount. For example, if you borrow £500 and are required to pay back £600, the interest is £100.
Interest rates are usually expressed as a percentage. In the above example, the interest is 20%. You are required to pay back 100% of the money borrowed plus 20% of the total loan amount.
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