What does 1% per annum mean?

Understanding 1% Per Annum

In the world of finance, the term “1% per annum” refers to an annual interest rate. This means that the interest is calculated and applied once per year to the principal loan amount.

Calculating the Interest

The amount of interest charged each year is determined by multiplying the principal loan amount by the annual interest rate of 1%. For example, if you have a loan of $10,000 with a 1% per annum interest rate, the interest charged each year would be $100 (10,000 x 0.01).

Example

To further illustrate, if you borrow $10,000 at a 1% per annum interest rate for one year, you would owe $10,100 at the end of the year. This includes the original $10,000 principal plus $100 in interest.

Conclusion

Understanding the concept of 1% per annum is essential when dealing with loans or investments. It allows you to calculate the amount of interest you will pay or earn over a specific period of time. By carefully considering the annual interest rate, you can make informed financial decisions that are aligned with your financial goals.