Whether it’s to pursue higher education, get a car for work, or finally buy that dream house, sooner or later, one option we explore to secure the necessary funds is taking loans. And while there’s nothing wrong with taking on debt to help you realize your dream, you must know what you’re getting yourself into from the beginning. It is because that’s the only way to make an informed financial decision. To that end, one term you need to familiarize yourself with is Effective Interest Rate, or EIR, for short. What Exactly Is Effective Interest Rate? EIRs are the actual interest rate you will pay on your loan once they consider the loan tenure. It means that the EIR of a loan determines how much you’ll be paying in interest. Because of this, Effective Interest Rate is a variable that you must never overlook when trying to secure a loan. The lower an EIR is, the better that loan might be for you! Types of Interest Rates to Know When determining EIR, one major influencing factor to always take note of is the type of interest rate that the loan is operating. Along these lines, you should know two types of interest rates. These are: 1. Flat Interest Rate In basic terms, a borrower pays a fixed interest rate on the principal they borrowed from the start of the loan term till the end. It means that, no matter how far along they get with clearing their principal, the amount of interest they have to pay remains the same. If, for example, you take a loan of RM 1 000 for a 5-year loan at a flat interest rate of 4%, you’ll end up paying a yearly interest of RM 40. As such, by the end of the loan term, what you’ll pay in interest alone will be RM 200! 2. Reducing Balance Interest Rate With this type of loan, they recalculate the interest after each payment. The reason is that what you pay as interest is expected to reduce the more you cut into the principal. So, just like with our first example, if you take a loan of RM 1, 000 for a 5-year loan at a reducing balance interest rate of 4%, by the end of the loan term, what you’ll have paid in interest will be no more than RM 105. So, even though the interest rate on both loans is the same, the Effective Interest Rate that these two interest types give you ensures that you end up paying more for one loan than you would for another. Conclusion Now that you know just how necessary EIR is make sure you don’t take any loan without first understanding how this element influences what you’ll ultimately have to pay.
One thing many credit card holders don’t immediately realize is that their credit card statement is just as important as the payment card itself! With this in mind, here are some of the most important things to consider when reviewing your credit card statement.
What Is a Credit Card Statement?
It is a financial report that your credit card company issues you that contains the details of your economic activities with your payment card during a particular billing cycle. However, these statements can also offer additional insight into whether or not your bank is overcharging you in any way. Because of this, you must learn to read this financial document’s fine print to spot any discrepancies more efficiently. Along these lines, some of the essential features of your credit card statement you need to pay attention to include;
1. The Credit Card Statement Date
This variable refers to the time they generated financial documents. It’s essential because it’s critical for calculating late payment fees. So, if you cannot meet the stipulated repayment date, this value estimates how much interest you’ll have to pay to compensate for this.
2. The Due Payment Date
It is the timeframe within which the credit card holder is supposed to repay their debt. It’s vital that you take note of this date as failure to meet up with it automatically attracts interest charges.
3. The Billing Cycle
It refers to the time between the last and following statement dates. Typically, it’s usually 30 dates. All financial activities are with a credit card during one billing cycle and all charges from your card issuer during the reflected timeframe in your statement.
4. The Grace Period
According to existing regulations, your card issuer reserves the right to apply late payment charges on your card if you don’t return what you borrowed within the standard grace period (usually three days). If a cardholder doesn’t do this within that time frame, the bank can charge interest which will start reading from the original due date.
5. The Total Sum Due
This value represents everything from all your financial activities during a billing cycle to the interest charged, transactional charges, and the total amount owed.
6. The Minimum Amount Due
As the name suggests, this is the smallest amount of money that your credit card company expects you to pay back at a specific due date. Failure to pay this sum results in the bank will add to the total sum you have to pay back.
Conclusion
There’s no doubt that your credit card statement can be challenging, especially if you aren’t very familiar with financial matters. But with this guide and a few other resources you can get here, you’ll have no problems managing this feat!