To understand interest rates, you must begin with an understanding of common interest rate industry terms:

*APR stands for annual percentage rate, which is the rate you are charged when you borrow money or use your credit cards.

*Prime Rate is the rate that the biggest banks offer their best customers, or lowest risk credit applicants who have demonstrated an ability to repay loans. Lenders then decide what interest rates to charge their customers which could be Prime + 1% and upwards.

*Fixed Rate refers to interest rates that will not change despite fluctuations in prime rate unless your bank negotiates a lower interest rate for you or you or you default on payments or consistently make late payments long enough that the bank raises your rate.

*Penalty Rate means your interest rate can be increased due to late payments. You may even incur penalty rates from one lender when your late payments were for another loan or credit card (a “universal default”). universal default clauses appear in your contract when you obtain your credit so read the fine print. A universal default may also be applied if your credit card company believes you have excessive debt with other loans and have become more of a credit risk.

*Variable APR/Variable Rates change with the Prime Rate.

What is the difference between revolving debt and installment debt?

Credit cards and credit lines are considered revolving debt because you can borrow and repay your debt over and over again. Where installment debt like auto loans, mortgages and other personal loans require a fixed amount of money borrowed over a specified time period and you repay this debt with fixed payments over a number of months or years.