Annualized Rate

The factors that go into short-term financial decisions can get so complex that it becomes difficult to compare options. There's just a lot of ins and outs to keep in the ol' duder's head (if you were born after 1984, that's a Big Lebowski reference).

To make these comparisons easier, it is helpful to find a standard period of comparison. That's why most business information gets reported on an annualized basis (See: Annualize). The process of annualization looks at whatever you are comparing as if you were doing that thing for a full year.

This comes up a lot in interest rates. You might take out a short-term loan from a payday lender. Under the terms of the loan, it might cost you $10 to borrow $250 for two weeks. This might not seem like much ("hey, it's just ten bucks"), but if you annualize that rate, it comes out to more than 100%.

By comparison, most credit cards only carry an annual rate in the low 20% range. By annualizing the figures, you can more easily decide that putting that $250 on your credit card makes more sense than taking out the loan.