How to Get to Grips with Interest Rates

One of the most important things you need to clarify before you borrow or invest any money is how much interest will be charged or paid.

Getting to grips with interest rates

Being able to borrow money can sometimes bring a sense of relief. If there is no money to pay a large bill, for instance, the ability to borrow the sum needed and pay it back over a period of time can he a great help.

This help comes at a price, however, usually in the form of interest. Interest is the lender’s fee for loaning you the money. It is charged as a percentage of the amount borrowed, so the larger the amount borrowed, the more interest you will pay. For those of you who are not confident about using percentages, I have outlined the basics below. You should make it a priority, however, to familiarise yourself with using percentages as soon as possible, because they are an essential tool in the world of finance.


In order to take complete control of your finances, you need to be comfortable working with percentages. Many people have difficulty understanding them, but they are actually very simple to use once you grasp how they work. Basically, ‘per cent’ means ‘per hundred’. For example, if you see written ‘1%’ or ‘1 per cent’, this means ‘one per hundred’ or ‘one in each hundred’. So if you have £100, and 1 per cent of this sum simply means one in each hundred, then in this case 1 per cent is £1. In the same way, 2 per cent of £100 means ‘two in each hundred’, so 2 per cent in this case is £2.

If you want to work out 2 per cent of £200, then simply remember that 2 per cent means ‘two in each hundred’. For each hundred, therefore, you must allow £2, so in this case 2 per cent of £200 is £4. Use this ‘per hundred’ rule with other numbers and you will quickly see that the higher the percentage, the more money is involved.

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About the Author: Marie Mayle is a contributor to the MegaHowTo team, writer, and entrepreneur based in California USA. She holds a degree in Business Administration. She loves to write about business and finance issues and how to tackle them.

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