How Do Interest Rates Works?

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Interest rates work by allowing banks to make money off of consumers for loans and debts. A lower interest rate will allow a consumer to pay off a loan more quickly and with less money. Obtain low interest rates on loans by having a good credit score and using advice from a registered financial consultant in this free video on interest rates.

Part of the Video Series: Money Management
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Video Transcript

This is Patrick Munro talking about, "How do interest rates work?" Interest is a form... mathematical form of a way for banks to achieve extra income. There are two types of interest. One is simple interest and the other is compound interest. If you are a lender compound interest is the best way to go because interest accrues upon interest. Investors also like this type of interest because it's a way to make more money. If you are a borrower though, you want to make sure that your interest rate is as low as possibly so that you can pay off your debt quicker and interest will not accrue at a large form because it will take you a long time to pay off your debt. So the best way is to get a low simple interest rate going forward. You will be given a low interest rate if you are worthy of a low interest rate by having a great credit score and we always talk about that going forward. So there are two types of interest: simple and compound so this is important knowledge to know. It's Patrick Munro talking about the different types of interest rates.


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