Interest
Whenever you borrow money, you will have to pay for the use of that borrowed money by paying interest on either the full amount borrowed or on the outstanding balance. Interest payments compensate lenders for providing borrowers with money.
Interest is calculated as a percentage of either the total amount borrowed or in the case of credit cards and store cards, on the outstanding balance owed. It is generally expressed as a percentage per annum. This simply indicates how much interest will be payable over one year. The amount of interest charged will depend on many factors.
Some of these factors include:
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whether the loan is secured or unsecured
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the term of the loan
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the risk associated with the loan
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the credit history of the borrower
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the type of credit.
Interest rates are generally calculated in accordance with the official interest rates set by the Reserve Bank, although some forms of credit may charge interest at much higher rates than the official rate.
For home loans, there are two types of interest: variable interest rates and fixed interest rates. For more information, see variable interest rates and fixed interest rates.