All Canadian Lenders must provide detailed information about the cost of borrowing, including the interest rate per year and any fees, charges or penalties that apply. To understand what the actual cost is you need to know the annual percentage rate (APR) and how the interest is being calculated is required. The APR is the actual rate of interest charged on a loan each year. Because the APR is calculated using standardized rules, it’s best to always compare APRs and not posted rates. Your lender must disclose the total cost of borrowing prior to initiating the signing of any lending agreement.
Dependent on the type of loan the method that is used to calculate interest can change the cost of borrowing. With mortgages and other loans, lenders use the remaining balance method. They multiply the interest rate by the principal balance at the start of the term. Each payment includes some of the principal amount. You don’t pay interest on any principal you have repaid.
With credit cards, if you pay the balance in full by the due date, you’re not charged interest. However, if you don’t pay off your balance in full each month, you will be charged interest from the day you made each purchase until you pay in full. With different cards, you may pay interest on your daily balance, your average daily balance, or your highest monthly balance. Check your cardholder’s agreement or extra statement information, if provided, to understand what method your credit card company is using. For cash advances and balance transfers, you are charged interest from the date you made the cash advance or balance transfer until the date you repay the amount in full.
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