I don't understand Margin Interest Rates...?

Question

Take, for example, Scottrade:

http://www.scottrade.com/online_broker_comparison/discount_brokerage_comparison.asp

The margin interest rate is 8.75% on $7500 Debit Balance.

Is the 8.75% counted per transaction? Or per year? How does it work, in detail? Examples will be great!

Also, what's the $7500 Debit Balance mean?

Answer 1

8.75% is the annual interest rate that is charged on your debit balance but it is debited against your account on a monthly basis so the actual interest rate charged will be slightly higher and the interest rate is not constant.  It can change depending on the cost of money. So if you were to borrow $1000, then the first month, the intrest charged would be about $7.30 assuming you borrowed the money on the 1st day of the month. That amount would be added to your debit balance so your new balance would be $1007.30 on which interest would be charged for the 2nd month or about $7.35.

I am not exactly certain of the context in which the $7500 was mentioned.  It might very well be that the 8.75% is charged on balances up to that amount.  Or the $7500 mean might mean  that if you were to borrow at least that much money, the interest rate would be 8.75%.  Generally, the more money you borrow the lower the interest rate.  The less money you borrow the higher the interest rate.