A bank that provides overdraft protection charges 12 percent for each $100 (or portion of $100) borrowed when an overdraft occurs. a. What amount of interest would the customer pay for a $188 overdraft? (Assume the interest is for the full amount borrowed for whole year.)   b. How much would be saved by using the overdraft protection loan if a customer has three overdraft charges of $30 each during the year?

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Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.