It has always been difficult to understand interest rates or how much they would affect your financial plan. However, these are very important terms because they dictate how much you would pay for a product or service. For example, a lower interest rate means you would save money on a debt. Conversely, a higher interest rate means that you would spend more money on a product or service. Understanding these terms and how they affect your finances is therefore critical.
It is not hard to understand why interest rates affect your financial decisions. After all, a lender is just a business that wants to make its money by lending out money. The interest rates it charges for loans are part of the fees it earns from the processing of your application. This also applies to credit cards and any other unsecured loans, you may get. In the end, your bank gives you a credit card or other form of loan because it wants to earn interest on it and then recover some of its risk from the borrowers of its loans by making interest payments to them.
But do interest rates affect your borrowing decision? If you want to borrow money at a lower interest rate than the current market-rate, then obviously you will opt to borrow the money. However, you must also consider whether the interest rates you are offered are still within your budget. Is it possible for you to make all your monthly payments for your loan without putting your finances in further danger? These are important questions to ask before opting to borrow.
To help determine whether or not interest rates are going to impact your total amount borrowed, analyze the interest rates offered to a similar loan application. There are many websites that offer calculators for this purpose. By inputting the relevant information, you can see how much of a difference there would be between your anticipated interest rates and those of the loan offer. In other words, it helps you identify whether or not your loan will be more affordable with fixed interest rates or variable interest rates.
Other factors in determining the interest rates on your savings account loan will include whether the borrower plans on paying interest while his savings are accumulating. The better interest rate he is able to get on his deposit when compared to the current interest rates, the more he will have leeway in choosing a saving account. This means that the more money a person has saved up, the less he will need to borrow on a monthly basis. As such, you may opt to borrow more money without worrying about incurring any additional debt. The bank may also charge a higher interest rate if the borrower does not plan to pay interest while his savings account is accumulating.
One thing that banks are not willing to consider is your credit history. Most people do not look into it too deeply, but credit history affects the interest rates that banks offer. Some borrowers who have bad credit history cannot avail of low-interest rates, which results in them having to pay more for their loans. Fortunately, however, there are several lenders who are willing to take these risk-takers. For instance, both the BBB and FDIC insured banks are willing to give out loans to borrowers with a bad credit history.
When considering a new lender for your borrowing needs, it is important to take note of how long the company has been in business. It is a sign of a stable business if a lending institution has been around for a while. Another good indicator is the number of complaints filed against it. A company with many unresolved complaints against it will likely be more stable than a lender that continually gets into trouble with its borrowers.
Also take a look at the APR on the loans. The APR refers to the annual percentage rate. Although this is usually the most important factor to consider when borrowing, there are still other factors to keep in mind. For instance, the fixed-rate loans that allow for only small increases in interest rates over the life of the loan are more favorable for borrowers because they do not require borrowers to calculate their interest costs annually. These low-interest rates make them great options for borrowers who want to borrow money without having to calculate their interest costs.