With so many financial terms out there, it can be very intimidating trying to navigate the best path for you and your family. Sometimes the jargon and the details become too overwhelming to attempt or they have a misleading reputation to start with. Don’t miss out on an opportunity because of a little misinformation. APR, reverse mortgage and bankruptcy are commonly misunderstood financial terms that ACCC wants you to know about as part of Financial Wellness Month.
Interest Rate vs APR
Interest rate and APR are terms often talked about in the same breath. Let’s take a look at both terms. You can earn interest from your bank in a savings account or CD or you can pay interest to a bank or lending institution for borrowing money. The interest rate is the percentage of the loan amount that you will pay for having the loan. The APR (annual percentage rate) is the interest rate plus other fees from the lender. This allows consumers to compare different lending packages as a whole, rather than just the interest rate. If one loan has a low interest rate but there are a lot more fees, the APR will help give a comparable number to see which is a better fit for you. Try this credit card interest calculator to see the impact of interest rates and APR.
Unfortunately, reverse mortgage is a financial term often remembered from bad TV commercials and shifty companies, not its actual definition. They can be offered through local or state government, the federal government, non-profit organizations or private companies. A reverse mortgage gives homeowners, 62 years of age or older, access to money that they have built up as equity in their homes. The money can cover a variety of costs including home improvement, healthcare expenses, retirement income or to finish paying a current mortgage. Reverse mortgages can provide financial independence by making funds available to the homeowner.
Just like reverse mortgages, bankruptcy is a term misunderstood by many. There are two types of bankruptcy people can file. Chapter 7 bankruptcy is when the court appoints a Trustee who may liquidate or sell some things that you own to pay your creditors. Most of your debt will be canceled, but you may choose to pay some creditors, usually to keep a car or home. Chapter 13 bankruptcy is when your debt is reorganized into a single monthly payment. The payment will continue for 36 to 60 months. Payments will not last longer than five years and you do not have to repay all of your debt.
If you want to learn more about reverse mortgages, bankruptcy or other areas of credit counseling, ACCC is here to help. To speak to a credit counselor today about budgeting and managing your finances, call 800-769-3571.